How flexible is my pension scheme?

15 January 2013

Q

I'm a 38-year-old firefighter and for 15 years I have paid 11% of my income into a public sector pension scheme. Last year, I decided to stop contributing and freeze the pension. What should I do with the money I have already accumulated? Do I just sit on it and wait until I'm 65 or can it be invested elsewhere, for example, in a private pension scheme. If I do move the pension would I be able to get my employer to contribute?
From
WT, Tipton

A

It is likely that you previously contributed to the Firefighters' Pension Scheme, which was available to regular firefighters employed before 6 April 2006. This scheme is now closed to new members and a New Firefighters' Pension Scheme was introduced for regular and retained firefighters employed since 6 April 2006.

The original scheme was incredibly attractive to members and while they had to contribute 11% of salary, their employer would contribute an additional 24.4% into the scheme, which provided a two-thirds final salary pension after 30 years.

The terms of the New Firefighters' Pension Scheme aren't quite as attractive, although it still offers excellent value, particularly when compared with the pension arrangements typically available in the private sector.

In the new scheme, employees pay 8.5% of their salary and the employer adds a further 11.8%. You can transfer the benefits you have built up in the Firefighters' Pension Scheme to a personal pension, but you should be cautious.

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With a defined benefit pension, such as the firefighters' scheme, all of the risks are with the employer. It is up to the employer to guarantee pension benefits.

These schemes usually also have additional attractive features, such as good levels of pension income escalation and a spouse's pension if you were to die before your partner. If you transfer out of the scheme you will lose these guarantees and benefits and you will probably struggle to replicate them elsewhere.

In a personal pension all of the risk lies with you so if your pension funds don't perform well, you'll get a lower level of income in retirement.

Unfortunately, it seems that you might not be able to rejoin the Firefighters' Pension Scheme, although you should be eligible to join the New Firefighters' Pension Scheme.

While the terms of the new scheme aren't as good as the old one, they are still likely to be superior to what you can achieve through a personal pension.

All of this can be quite complicated and getting it wrong could be expensive. You should therefore seek independent financial advice before making any decisions. To find an IFA in your local area go to unbiased.co.uk.