What are safeguarded benefits and when do you need to take advice to give them up.
The Pension Schemes Act 2015 introduced the concept of safeguarded benefits from 6 April 2015. It also placed a requirement on some individuals to take financial advice before they can give up safeguarded benefits.
Key facts.
Key facts advice on pension transfers generally must be provided by, or checked by, a Pension Transfer Specialist. If they are only checking the transfer they must check the entire process, not just the numerical analysis.
An individual with safeguarded benefits worth more than £30,000 under the scheme must take financial advice before they can convert, transfer or take them as a cash lump sum.
The transfer value analysis has been replaced with a requirement to undertake “Appropriate Pension Transfer Analysis” of the client’s options.
This includes a prescribed comparator (Transfer Value Comparator) which aims to show the cost of providing the same benefits as the Defined Benefit scheme but in a Defined Contribution scheme.
What are safeguarded benefits?
Safeguarded benefits are defined as benefits that are not money purchase or cash balance benefits. This means defined benefits, guaranteed pensions including Guaranteed Minimum Pensions (GMPs) and Guaranteed Annuity Rates (GARs).
You may be surprised by the inclusion of GARs in the above list. This is because the benefits are calculated by reference to the guarantee and not just the plan value.
When must you take advice to give up safeguarded benefits?
An individual with safeguarded benefits worth more than £30,000 under the scheme must take financial advice before they can do any of the following:
Convert these benefits into a different form of flexible benefits under the scheme
Transfer these benefits to another scheme to take flexible benefits
Take a cash lump sum in respect of these benefits
You do not need to take financial advice where your benefits under the scheme are valued at £30,000 or less. Providers may not accept non-advised transfers of safeguarded benefits so you should check before submitting any transfer applications.
Not all schemes or plans will offer all of the above options.