Defined Benefit (DB) schemes regularly review how to manage their future liabilities and one exercise that many will undertake is to offer deferred members an ETV (Enhanced Transfer Value). This amounts to their Standard Transfer Value based on their future pension entitlement under the scheme plus an additional incentive.
This is normally offered for a limited period and many schemes will require members to obtain financial advice from an advisor appointed by the scheme before allowing them to accept. However, it is also important to realise that you may seek out your own unbiased Financial Broker to compare the market and offer you best market value if choosing to take your transfer.
Enhanced Pension Transfer Value – Typical Example
Comparing the value of an ETV requires a comparison with the standard TV and the potential benefits that are being given up.
If the members defined benefit pension had been valued by the scheme at say €350,000 based on the standard transfer value calculation for a Defined Benefit Scheme and the scheme was offering an enhancement of 20%, then the total Enhanced Value Transfer would be €350,000 + €70,000 = €420,000
The ETV offer places members under no obligation to accept the Transfer Value, and many will choose to retain their deferred benefits under the scheme. However, it will be of interest to some members who may favour the flexibility that the transfer value can provide or whose circumstances may favour an alternative approach to retirement.
Although the transfer value offered will look immediately attractive, it is important that you understand exactly what you may be giving up in exchange for this transfer value. Your long-term needs must be considered as well as the viability of the existing DB scheme.
Before deciding whether to accept an Enhanced Transfer Value, clients should always seek advice from a Financial Advisor.
From a member’s point of view, gaining control of the transfer value can offer real flexibility:
- Ability to choose when to retire and to access tax-free cash early.
- Ability to choose your own undelying investments
- Full estate payout on death.
- On retirement, a choice of an Annuity or an Approved Retirement Fund (ARF) or both.
- Access to flexible income drawdown facility in choosing an ARF.
Furthermore, there is no overriding legislation in Ireland, which compels employers to pay contributions and make good pension scheme deficits. Members of DB pension schemes may therefore view the ETV offer as an opportunity to crystallise the value of their benefit and remove the risk of subsequent benefit reductions if the employer is unable to fund the DB scheme in the future.
Why Contact Us?
We provide a comprehensive report designed to assist members of Defined Benefit pension schemes if they are offered a Transfer Value or Enhanced Transfer Value, to transfer from their scheme into a Personal Retirement Bond or similar pension vehicle. This will clearly outline all the advantages and disadvantages of both considerations.
Where clients choose to transfer their benefits to a Personal Retirement Bond (PRB) we offer 100% investment allocation, with the broadest choice of fund managers, risk-rated fund choices, and the lowest associated plan charges.
Speak with a Financial Advisor
To arrange your free no-obligation discovery consultation by phone contact us today.
Contact: Ken O’Gorman – Retirement Planning Specialist – One Quote Financial Brokers on: 01 845 0049 or email: ken@onequote.ie
Or enquire online and give us a quick outline of how we can help.
