Pension Advice – How Safe is My Private Pension?
It’s natural to feel worried about your pension and to want some reassurance — especially these days when the financial situation is changeable from day to day. But while it can feel as though your pension is in danger, there’s actually never been a better time to have a well-matured pension and to make it work for you.
To understand why that is, Giliker Flynn has put together this short article, the latest in our series on pension advice. To start with, we’ll go over the two most-common types of Private Pension: Defined Benefit Pension Scheme and the Defined Contribution Scheme.
Defined Benefit Pension Scheme
The first type of private pension that we’ll discuss is the Defined Benefit Pension Scheme. According to MoneyHelper.com, in this type of pension plan, the payment you’ll receive at the time of your retirement is based on your income and the amount of time you’ve spent with your company at the time of your retirement.
In the past, when employees could spend their entire career at one business, the Defined Benefit Pension Scheme was the ideal scheme — it meant that employees who’d been with a company all their working lives could retire happily and securely. As well as that, you also had the opportunity to take out a small lump sum as soon as you retire — allowing you to celebrate your retirement. As a result, it was a commonly repeated piece of pension advice to stick with this type of pension.
However, with the changing face of the job market and working life, it has now become much more common for employees to change their jobs — and even their careers — far more often, with the average person holding 12 jobs over their lifetime and the average employee staying with a particular employer for no more than 4.1 years as of 2021. As a result, the Defined Benefit Pension scheme has become something of a rarity in the current pension marketplace — with most currently active ones being strictly legacy and most pension brokers advising against them for most clients.
How Safe is it?
If you do have a Defined Benefit Pension Scheme, you should feel confident that your pension is safe and sound.
For a start, the Defined Benefit Pension Scheme is backed by the Pension Protection Fund. The Pension Protection Fund (or PPF) wil step in if your pension provider goes bust and cover your pension fund as long as you’re over the normal pension age (or started receiving your pension early due to ill-health). The PPF will also step in for any surviving widows/widowers, if you pass away before you can access your pension.
Defined Contribution Scheme
The other type of private pension scheme that we’ll talk about is the Defined Contribution Scheme.
Unlike the Defined Benefit Pension Scheme, the Defined Contribution Scheme is based on a pension pot that you and your employer pay into each time you receive a paycheck. This pot can grow or shrink depending on your pension provider’s investments — making it highly volatile in comparison to the Defined Benefit Pension Scheme. As a result, it’s difficult to estimate how much your pension pot will actually be on a Defined Contribution Scheme.
However, with that risk also comes the added benefit: choice. With a Defined Contribution Scheme, you have the opportunity and choice to keep the pension going if you leave your current employer. Furthermore, these kinds of pensions are easily transferable to spouses and children.
As a result, over the past few decades the Defined Benefit Pension Scheme has become the dominant form of pension scheme. Today, most pension advice experts recommend a movement away from Defined Benefit Pension Scheme to a Defined Contribution Scheme.
How is it kept safe?
While the Defined Contribution Scheme isn’t covered by the Pension Protection Form (in the same way the Defined Benefit Scheme is) it is covered by the Financial Conduct Authority, the Pension Regulator, and the Financial Services Compensation Scheme. This means that a Defined Contribution Pension Scheme is protected from most dishonest and predatory practices.
As well as these regulatory bodies, the Defined Contribution Scheme has other features which protect your pension from anomalies and predators. If you have a Defined Contribution Scheme, your pension assets are held in custody for you by a pension provider that is separate from your employer — meaning that your pension fund can continue even if your employer closes.
Likewise, Defined Contribution Scheme pensions are also covered by the Financial Services Compensation Scheme (or FSCS). This means that your pension is protected for up to £85,000 if your fund’s investments do not return positive results. Likewise, while the FSCS doesn’t cover performance losses on pensions, it does aim to pay back 100% of any losses if your pension provider goes bust.
Ultimately, because of these dual levels of protection, a Defined Contribution Scheme is heavily insulated from economic ripples and irregular practices. Combined with the flexibility of the Defined Contribution Scheme, this makes the recommendation of a Defined Contribution Scheme a piece of sound financial advice.
How can we help?
As you can see, private pensions are well-protected from ripples in the financial industry — whether they’re Defined Benefit or Defined Contribution Scheme Pensions. And while it can be argued that the Defined Contribution Scheme State Pensions are much safer, in truth both types of private pension schemes are well protected from interference. Thanks to that protection, there’s never been a better time to make your pension work for you.
Giliker Flynn Independent Wealth Ltd is the company to help you make that happen. Based in Newcastle Under Lyme, we offer impartial, fully independent financial, pension and retirement advice to our clients, priding ourselves on the fact that we offer a bespoke service to our clients with one goal in mind: help our clients make the most of their investments and wealth. We can help you with everything — from advice on ways to help you save money to retirement planning techniques to ensure that you can do so in a way that allows you to maintain your current lifestyle.
Get in touch with us to find out how we can help you today.