Tim Carroll Explains ‘Safeguarded Benefits’

Tim Carroll, President of UK Pension Transfer LLC, answers a common question we hear often in our line of work: What are safeguarded benefits?

Understanding pensions, benefits, and pension transfers used to be a fairly straightforward affair. You worked, saved, and drew your pension without little concern for how your savings were handled.

Now, however, the whole world of pension transfers is a confusing maze of jargon and ever-changing regulations. It can be hard to keep up, so we thought we’d get down to basics for a moment and go over what’s known as ‘safeguarded benefits’. You’ve seen the term before, but do you know precisely what it means and how these benefits have been affected by recent changes in legislation?

How Benefits Have Evolved

Officially, the idea of benefits that are ‘safeguarded’ has only been around since 2015, when they were introduced to the public as part of The Pension Schemes Act of 2015.

The Department for Work & Pensions defines safeguarded benefits as ‘pension benefits which are not money purchase or cash balance benefits’.

That’s a good start, but let’s flesh that out a bit with some further explanation in layman’s terms. Some pensions work on the premise of a promise. You pay in during your working years, and in exchange you expect the pension scheme to hold to a ‘promise’.

The Promise of Safeguarded Benefits

The promise of safeguarded benefits is that you will be receiving a level of secure pension income after you retire. The minimum amount of that income may be calculated in any of several different ways.

  1. It may be a promised level of income based on your final salary.
  2. Alternatively, it may be calculated based on your contributions.
  3. Finally, the promised amount may be a promised rate in which you’d have an option to convert what you’ve accumulated so far into income at some future time. That usually occurs when the member turns a certain age.

The Different Types of Safeguarded Benefits

  1. Guaranteed Minimum Pension (GMP). GMP is just what the name implies: there is a set minimum pension that’s guaranteed for men over 65 and women over 60. The payouts are distributed according to strict rules, which also govern survivor benefits. GMP benefits can not be drawn early unless certain conditions are met. Pensioners with a GMP build up their pension rights through an employer’s pension scheme. It replaces a portion of the State Pension.
  2. Guaranteed Annuity Rate (GAR). This offers defined benefits and a guaranteed minimum rate annuity when you retire.
  3. Defined Benefit. If your pension scheme is a DB pension (aka ‘final salary’ pension), your benefit is calculated according to your length of service and the salary you’re making at the time of retirement.

Giving Up Your Safeguarded Benefits

If you’d like to exercise your rights and convert, transfer, or cash out your safeguarded benefits, you’ll need to know about the new regulation that went into effect in April 2016 (per The Pension Schemes Act of 2015 mentioned earlier).

If your safeguarded benefits are worth more than £30,000, then you must seek financial advice before you transfer, convert, or cash out.

This is called the ‘Advice Requirement’ for safeguarded benefits, and it aims to prevent UK pensioners from handing over pension funds to shady schemes or getting scammed in some way. The rule is also designed to ensure that pensioners fully understand what they’re giving up when they convert safeguarded benefits to another form of benefit.

We hope that clears things up a bit. Here at UK Pension Transfer LLC, we know that the new pension rules can sometimes seem unclear. Don’t worry; we can help. If you’d like to learn more about safeguarded benefits or any aspect of pension transfers, we invite you to call Tim today at 1-770-391-0181.