Time to switch out of a defined benefit pension?
The UK pension funds liquidity crisis has, quite understandably, shaken confidence in defined benefit (DB) pensions.
People with these final salary-linked schemes got very worried when the news broke of fund managers having to sell assets in a hurry and the Bank of England riding to the rescue.
The truth is that there is no need to panic: experts say these schemes are secure, at least for the foreseeable future. Accountancy firm PwC, which monitors the universe of more than 5,000 DB schemes, says they are now overall better funded than ever before.
After years in which DB pensions offered the best guaranteed pension income, those who now cash in their final-salary chips can benefit from a 52 per cent rise over the past nine months in rates on annuities — contracts offering a guaranteed income stream.
Depending on your age, scheme and health, an annuity might now offer a higher income than your DB pension. Plus, you might be able to buy better inflation proofing than your DB scheme too.
But higher income isn’t the only consideration. Switching to an annuity may be worthwhile for more people than before — but it’s still not for everybody.
For those who have one, a DB scheme is the starting point for a secure retirement and for many it will form the bulk of retirement income. So before making any changes, understanding the facts, risks, and alternatives, is essential.
This story originally appeared on: Financial Times - Author:Moira O'Neill
