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Switching Pension Schemes

By October 20, 2014 No Comments

Following the “Pensions Freedoms”

An announcement in the budget a number of things have happened, some good, some bad ….

But one of the biggest ‘shifts’ comes in relation to the switching of pensions from ‘Defined Benefit’ pensions to ‘Defined Contribution’ pensions. It is believed that the shift is up to nearly 30% of savers are making the move.

Why? Defined Benefit scheme members are moving their money to a Defined Contribution scheme to take a lump sum or use their pot in other ways.

Back In March, the chancellor George Osborne revealed his pension shake-up, with the focus on providing more flexibility to savers up on retirement, allowing people to access 25% of their pensions tax-free with the remaining 75% taxed at their marginal rate.

In July the government decided not to ban Defined Benefit scheme members from transferring into DC schemes. Then the announcement that your pension pot would effectively take the guise of a bank account, allowing you to take tax-free values from your “pension bank account” out when you like.

The government originally estimated around 10% to 20% of Defined Benefit members would leave their schemes, but experts predicted that the switch rate could be higher, this effect could possibly remove £15 billion of future pension payments off the books of the biggest listed companies which still ran DB pensions.

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