If you have an employment contract with an employer, you often accrue pension. You will continue to do this until you leave the service. If you change jobs, you may have to deal with a different type of pension scheme. This switch may change the accrual of your retirement or survivor's pension. What exactly? And is value transfer a good alternative? We list it.
Average pay scheme
With most funds you accrue pension in a so-called average pay scheme. In fact, you fill two savings with this: one for your own retirement pension, one for the survivor's pension that your partner, if any, will receive if you die. When you leave the service, you keep what you have saved up to that point. The amounts insured for you and your partner are stated on the pension statement that you receive after termination of your employment.
New work, new arrangement
At your new job you often have to deal with a different pension scheme. If your new employer has one based on defined contribution, you have to be careful: the survivor's pension here is only an insurance policy without value accrual. Compare it to a home insurance policy. As long as you pay the premium, you are insured. But will you stop paying? Then the coverage also stops. With a defined contribution scheme, you are covered for the survivor's pension from the date of commencement of employment until the day you leave employment or retire.
Is value transfer sensible?
When you switch to a new pension scheme, you are entitled to take the pot from your old scheme with you: we call this value transfer. Are you transferring both jars from your average pay scheme to your new defined contribution scheme? Then they both end up in the pot for your retirement pension; there is no separate one for the survivor's pension.
Although value transfer often seems like a good deal for your retirement pension, you do therefore fully surrender your previously accrued survivor's pension. And then you die? In that case, your partner will only receive a survivor's pension from your last employment. What you have built up for that is gone. A value transfer can therefore disadvantage your partner for many hundreds of thousands of euros. That is why you should always get good advice about the consequences of a value transfer.
Do you have questions about your pension or do you want to know what value transfer would mean for you? Contact our pension experts. Our Service Center is available every working day from 8.00 to 18.00 via email@example.com and 0345 851 963.