Updated 03 September 2020
If you’ve worked in the public sector for many years, you may have built up a defined benefits scheme pension. How could the changes to pensions affect you?
“I have worked for the NHS for over 20 years and have built up quite a decent NHS pension. I’ve read about the new pension options announced in the Budget but I’m not sure how this will affect me. Can you help?”
The NHS pension scheme – along with other public sector and some private sector occupational pension schemes – is what is called a defined benefits scheme. This means what you get when you retire is based on benefit entitlements you have built up according to your length of service and salary, rather than being based on money you and/or your employer has contributed to a pension investment pot.
The future of defined benefit schemes is still in consultation. The Chancellor is planning to ban transfers out of public sector pension schemes into defined contribution schemes to avoid a sudden rush of people leaving these schemes and may well ban transfers from all defined benefit schemes.
But the new “trivial commutation” rules will apply to defined benefit schemes so if your benefit entitlement on retirement is valued at £30,000 or less, you will be allowed to take it all as a lump sum. You must remember that if you have any other pension arrangements such as a private pension, this will count towards the £30,000 limit.
The final point to make is that, in the main, public sector pension schemes do offer a valuable retirement income rate – much higher than you would get if purchasing an annuity, for example. It’s therefore likely that many workers in the public sector would still be better off in their defined benefits scheme.
Need support preparing for your retirement? Download our pre-retirement checklist and speak to an independent financial adviser.
About the author
Carl Lamb Founder and Managing Director of Almary Green Investments Ltd, Carl is passionate about delivering a quality service to clients.
Please note: The opinions, beliefs and viewpoints expressed by our contributing authors do not necessarily reflect the opinions, beliefs and viewpoints of unbiased.co.uk.