I have been in the Teachers’ Pension Scheme since the age of 22 and I am now 54. I know it is a very good defined benefit scheme but I would like to explore all options with it. Is there a facility for me just before I retire (likely at age 60+) to have it transferred over as a SIPP?

Mark

Tom Selby, AJ Bell Senior Analyst says:

Because the benefits you have built up are in a public sector defined benefit pension (DB) scheme, unfortunately Government rules don’t allow you to transfer out to a SIPP (or any other type of pension for that matter).

This is the case for all ‘unfunded’ public sector schemes, including those paying pensions to civil servants and NHS staff.

The decision to prevent members of unfunded DB pension schemes from transferring out was made in April 2015. The move coincided with the introduction of pension freedoms reforms which gave savers in defined contribution (DC) schemes such as SIPPs total flexibility over how they spend and invest their retirement pot from age 55.

While the Government never specifically said why it came to this decision, it is likely the primary driver was concern about the impact a large volume of transfers out could have on the public purse. Because there are no assets backing up unfunded pension schemes, any pensions that are paid out come from Treasury coffers today.

So if lots of people had chosen to transfer out at the same time to take advantage of the pension freedoms, the Exchequer would have had to pay that money directly from funds earmarked for day-to-day spending.

The exception to this ban on transfers within the public sector are local authority pension schemes, which are funded. This just means that rather than pensions being paid out of general taxation, the schemes invest in assets – such as stocks, bonds and infrastructure – with the returns (in theory at least) from these assets paying members’ guaranteed retirement incomes.

Members of private sector DB schemes who have not yet reached their scheme’s normal pension age – the point at which they become entitled to their pension – are also entitled to receive a ‘transfer value’. That is an offer of cash from their scheme to switch to a DC alternative and give up their guaranteed pension.

If you have a private DB pension worth £30,000 or more, Government rules require that you receive regulated financial advice before transferring.

DO YOU HAVE A QUESTION ON RETIREMENT ISSUES?

Send an email to editorial@sharesmagazine.co.uk with the words ‘Retirement question’ in the subject line. We’ll do our best to respond in a future edition of Shares.

Please note, we only provide information and we do not provide financial advice. If you’re unsure please consult a suitably qualified financial adviser. We cannot comment on individual investment portfolios.

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