Head to Head: Defined Benefit Scheme v SIPP

two options available for pension planning

What are the differences between a defined benefit scheme and a private pension?

Below is a head-to-head comparison of a typical final salary scheme against a SIPP. Basically, the difference is in functionality and control.

The DB scheme offers a guaranteed income for life, while the SIPP offers the member control over their pension money – albeit at their own risk.

Key FunctionTypical final salary/career average defined benefit schemeSelf Invested Personal Pension (SIPP)
Structure of retirement benefitsPre-definedFlexible
Lump sum death benefitsMay offer defined lump sum benefit, such as a ‘5 year guarantee’, where initial 5 years of income is guaranteedPension fund value available upon death as a lump sum
Income death benefitsTypically offers spousal income death benefits, as a percentage of member income for the lifetime of a qualifying spouse/civil partnerPension fund value can be withdrawn as a regular income if preferred
Death beneficiaryTypically limited to spouse only, a long-term lifetime financial dependent may qualifyNominated by member, any individual or charity may be nominated, multiple nominees allowed by percentage of benefits
Income structurePre-defined structured income for the lifetime of the memberFlexible income withdrawal, which may be turned up/down and on/off as desired by member, without limits
Inflation protectionScheme-specific inflation protection over lifetime incomeInflation must be considered when planning withdrawals
Ad-hoc withdrawalsNot availableAd-hoc withdrawals available anytime past minimum retirement age (55)
Currency optionsNot availableMajor currencies available in certain pensions for both investment and withdrawal
Investment controlInvestment strategy controlled by scheme trusteesInvestment strategy directed by member, typically under advice
Investment riskUndertaken by trusteesUndertaken by member
Key risk of poor scheme/investment managementShould a scheme be deemed in deficit, it may be eligible for protection under the Pension Protection FundPoor fund performance could mean a lower income available to the member than expected and planned for

Is a transfer from a defined benefit scheme to a SIPP right for you?

Pension Transfer Personality Quiz

Take our free pension transfer personality quiz to find out if a pension transfer is right for you!

1 / 10

How would you describe your investment or financial planning experience?

2 / 10

Where will you live in retirement?

3 / 10

What sort of taxpayer will you be in retirement?

4 / 10

How would you describe your relationship with money and finances?

5 / 10

Are your essential outgoings already covered by other retirement income?

6 / 10

Will anyone else be reliant on your pension for their financial security?

7 / 10

When you retire, will you need to withdraw a lump sum?

8 / 10

Do you require ad-hoc access to your pension funds in retirement?

9 / 10

How would your ideal retirement income be structured?

10 / 10

If you died, who would you want to benefit from your pension money?

Only provide your details if you are happy for us to contact you about your planning

Click the flag below for your instant results!

Our pension transfer quiz takes into account important factors in your personality and attitude to money. While a pension transfer might sound attractive, is it right for you? Test yourself below, and claim your free guide to pension transfers to find out more.

Reviewing your defined benefit scheme

A defined benefit scheme is a ‘one fits all’ solution provided by an employer. The income is pre-determined and the plan likely includes death benefits to a spouse, and inflation increases. If that fits with your needs, you should keep your pension.

By reviewing your pensions well in advance of retirement, you will find out what’s best for your long-term. You will understand the most suitable option to take when it comes to a time to claim your defined benefit pension, and be able to plan other wealth around your guaranteed income backbone. If your defined benefit scheme isn’t exactly what you’re looking for in retirement, perhaps a SIPP could improve your planning.

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