Should I stay or should I go? The clash of Defined Benefit and Defined Contribution Schemes

Defined benefit pension schemes are seen as one of the best types of pension schemes to be a member of and were not so long ago referred to as the gold standard of pensions. However, there is now a clash between defined benefit schemes and defined contribution schemes after the new pension flexibility rules have come into force and high transfer values are currently available.

What is a Defined Benefit Pension Scheme?

A defined benefit pension offers a secure guaranteed income for life at retirement. This income typically increases year on year and there are often spousal benefits if the member passes away. Because of this they are very much sought after by employees.

Employers want to go

However, they are also very costly to maintain for employers. Consider an employee with 40 years of employment and a life expectancy of a further 25 years and you can see how this becomes very costly to the employer. The liability for maintaining this pension also falls with the employer and this is another reason employees are looking to allow defined benefit members the opportunity to transfer out by enhancing their transfer values.

The Clash

Whether you should stay in your defined benefit scheme or transfer to a defined contribution scheme will very much depend on your financial situation and whether you can afford to give up the guaranteed income of the final salary pension. The table below shows some of the pros and cons of the two schemes:

 

Defined Benefit Schemes Defined Contribution Schemes
Pros
·         Guaranteed known income for life

·         Escalation of income

·         Spousal Pension

·         No responsibility for charges and investment growth

·         Not affected by markets

·         Pension Protection Fund is available

·         Income is flexible

·         Can be passed onto beneficiaries other than spouse

·         If markets rise you could end up with more money in retirement

·         High DB scheme transfer values

Cons
·         Income is fixed and inflexible

·         Cannot be left to anyone but spouse

·         No Control of investments

·         Responsibility for investment growth and charges

·         Can fall in value with markets

·         No protection from Pension Protection Fund

·         May not have a large enough pot at retirement

As you can see there are many reasons why a defined benefit or defined contribution scheme may or may not be suitable for you and we will endeavour to help you make this decision in order to help you achieve your retirement goals.

So come on and let us know and we will help you decide whether you should stay or you should go from your defined benefit scheme.

Please ring on 0333 11 222 11 or contact us via info@fbwealth.co.uk

Written by Independent Financial Adviser Gavin Smart Dip PFS – July 2017

The banking world

We need banking but we don’t need banks anymore. Bill Gates, 1997.  

Traditional banks have bloated, costly infrastructure and are in a state of inertia, it is, in this environment that a new reality of financial services will emerge. Banking is no longer defined or hemmed in by physical artefacts or a physical distribution network, the effects of the mobile phone and internet are causing a change in the paradigm of financial practices, distribution models and the competitive landscape.  

Historically, banks have generated value by combining different businesses—financing, investing and transactions.  Financial firms are now breaking the status-quo and are rivalling the existing incumbent UK banks and other financial intermediaries. Retail banking is of fundamental importance to consumers and to the UK economy as a whole. There are more than 68 million active Personal Current Accounts (PCAs) in the UK and 97% of adults in the UK have a PCA; of these 70% of all PCAs are under the control of the four largest UK banks, Lloyds Banking Group, HSBC, Royal Bank of Scotland and Barclays.  

Large incumbent banks have dominated the market for many years and consumer confidence in banking remains low, millions of customers have gone through a fundamental change in how they manage their finances, with the growth of both digital and mobile banking.  

With all four ‘big banks’ retreating from the high street, figures show there has been the equivalent of more than one branch closing every day; there were 20,583 branches in 1988 but only 8,837 in 2012 (British Bankers Association, 2013). This is primarily due to financial innovation and societal change. These closures however, are not without controversy; the traditional role of banks within the community has changed and the withdrawal of branch networks throughout the UK has accentuated social divisions in access to services, reconfiguring broader societal and economic participation. 

It is clear that the potential market for Fintech (financial technology) is extensive worldwide and throughout the financial services. The UK’s retail financial sector is a changing landscape and a mix of both new innovative technology and traditional practices is opening new opportunities for both clients and companies.   

Digital technology is introducing a new demand for how financial services are delivered. In particular, Millennials – under 30 years of age – have distinct preferences regarding financial services and digital technology. FB Wealth is in the process of introducing iPad’s as a tool for all advisers, they will be used at first meetings, review meetings and to allow flexible working to meet the demands of an ever growing client base. 

Consumers need a new service proposition, they want their financial services such as banks and advisory firms to help make their financial lives easier and enable them to manage their money more proactively and truly focusing on their needs. FB Wealth is in a unique position to take advantage of an opportunity to deepen the relationship with their clients and provide the service they are looking for.

 

The New Guy

My first Month with FB Wealth Management.

The eagle-eyed amongst you might have a noticed a new face pop up on our Social Media sites last week. Well, that new face is me, so now I’ve settled in, met the team myself and found the kettle, I thought it would be good to introduce myself properly.

I joined FB Wealth Management at the end of June as a Paraplanner, someone who supports our IFAs in bringing clear, well researched solutions to our clients. The first month has gone extremely quickly; there has been a huge amount to take in but my new colleagues are very welcoming and it already feels like home.

Continue reading “The New Guy”