In our weekly series, readers can email in with any questions about retirement and pension savings to be answered by our expert, Rachel Vahey, head of public policy at investment platform AJ Bell. There is nothing she does not know about pensions. If you have a question for her, email us at money@theipaper.com.
Question: I am thinking of transferring my defined benefit pension to a defined contribution pension where I can draw money down as and when I want. What do I need to think about? What are the pros and cons?
Answer: Often referred to as gold-plated pension schemes, defined benefit pensions were once the standard workplace pension. But rising costs mean very few private sector schemes are still open, while public sector workers are more likely to still have access to them.
Shorts
They are valuable because they promise a pension income for life based on your salary and how long you were in the scheme. For example, you might build up 1/60th of your salary for each year you’ve been in the defined benefit scheme. Traditionally, the scheme used your final salary, but now it’s more likely to be your average pay over your career. Some schemes also offer a separate cash lump sum, others will let you exchange part of your pension for a tax-free lump sum.
