If you’re the sort of person who needs a budget, a regular steady income with minimal management, then yes. However, if you’ve been working your socks off, have solid retirement savings and are looking forward to a wonderful retirement full of family, friends and travel; if you want to pay off that dreaded mortgage or live life while your health’s still good, then perhaps not.
What’s great about a final salary scheme (also known as ‘defined benefit’) is their predictability, their pre-defined structure. From the point you left employment where your final salary benefits were building, you know what you’re going to get back… at least in real-money’s terms.
How do they work?
When you leave employment, or leave active scheme membership, your pension benefits become ‘preserved’, meaning they are based only on the salary you were earning while in that job. This means that the pension freezes; no growth will accrue, no further pension will build. Instead, you’ll receive a statement to tell you what your pension income is worth at a pre-defined age. Subject to your former employer maintaining healthy accounts, that’s what you’ll get. In the event of your death, your spouse will likely receive a proportion of that pension for their life. The details of what you’ve got are easy to grasp, but it’s important that you take time to understand the alternative pension structures available, which might just surprise you.
In headline terms, a final salary scheme provides a backbone pre-defined income structure, while a private arrangement such as a Self-Invested Personal Pension (SIPP: UK based) or Qualifying Recognised Overseas Pension Scheme (QROPS: based in a jurisdiction offshore) means the pension funds are instead in your hands or the hands of a good adviser, if you have one.
Why go private?
With a private pension there’s more opportunities to plan; to design your own retirement and draw out a regular income as well as lump sums to your liking. The private plan means you can access funds for those irregular spends, as well as adjust income whenever you need in order to fit your lifestyle. It offers increased control and allows you to manage what age you retire, what currency your income is paid in and how much income you take each year. It allows you to plan for tax, wherever you are in the world, benefit from long term market growth and leave your funds to whomever you choose, tax efficiently.
The most important thing you can do as a defined benefit scheme member is ensure you understand what you have, the health of your scheme and what alternatives are available in a private plan. When compared to your retirement plans, you can then make an educated decision over which is best for you and your family.