To trade or not to trade, that is the question – David Piltz, head of trustee services comments on switching Defined Benefit for Defined Contribution
“Do I feel lucky? That’s a question anyone thinking of transferring their pension fund from a defined benefit (DB) arrangement to a defined contribution (DC) arrangement should be asking themselves.
“The news on increased flexibility at and beyond retirement for members of DC arrangements, announced in the March Budget, is to be applauded. But let’s be clear, this does not mean such schemes are now gold plated. For some people converting their DB arrangement to DC will be a good idea, but for everyone in that position there will be many more for whom it is a very bad idea indeed.
“Transferring from a DB scheme to a DC arrangement means you don’t have guaranteed income in retirement unless you buy an annuity, whereas a DB scheme will give you a guaranteed income for life, and often a pension for your spouse for their life after you are gone. Making the switch to DC could mean that the money may run out, that is if you and your partner have a long retirement. It may also mean that you’ll have to manage your pension benefits into your eighties and nineties – and maybe even beyond. Get it wrong and it could leave you in a predicament where your children may have to fund your later years if your pot runs out.
“Yes, transferring to DC will give you greater flexibility over when and how you draw your benefits, but trading the guaranteed income from a DB scheme for a less certain DC arrangement is ultimately a game of luck, and certainly not to be rushed into.”
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