Members of traditional Defined Benefit (DB) pensions schemes considering transferring to a Defined Contribution (DC) or ‘pot of money’ arrangement often do so because of the flexibility it provides. Transferring out your DB rights into a DC pension can also enable you to use it how you want beyond normal minimum pension age (currently aged 55). Examples include funding an early retirement, paying a large one-off item or drawing more heavily earlier in retirement instead of steadily throughout retirement.  

But what if similar flexibilities are available within the DB pension scheme without having the need to move? Some of these are standard options are already built into the majority of schemes, such as the option to take early or late retirement and the option to vary the amount of tax-free cash taken. Other schemes may offer members the chance to take a higher pension in exchange for lower inflation increases, or to take a higher early pension for a limited time period up to state pension age to facilitate early retirement. 

The right choice for each individual will depend on their specific circumstances and goals. But it is important that DB scheme members understand that moving some or all of their money out of the DB scheme is not the only option to achieve the flexibility that they seek. There may be flexibilities within the current DB scheme which would allow them to re-profile their pension in a way that works better for them and avoid the risks associated with a full pension transfer. 

In this paper we aim to explain the main flexibilities which may be offered within a DB pension scheme and the pros and cons of each from the perspective of the member. 

Key discussion points include:

• There may be far more flexibility available within the DB world than is commonly appreciated e.g. in many schemes members can vary the balance between regular pension and tax-free lump sum to fit their individual circumstances.  
• Other ways of re-shaping DB benefits are also available: 

• Utilising Pensions Increase Exchange (PIE) to forego inflation protection above the statutory minimum in exchange for a higher pension.  
• Utilising a Bridging Pension Option (BPO) to take a higher pension before state pension age in return for accepting a drop in pension when state pension age is reached.  

• ‘Flexibility’ does not need to be synonymous with ‘transferring out.’ Many schemes may already offer a range of flexibilities which allow the member to alter their retirement date or the profile of their pension income without leaving the ‘safe harbour’ of the DB pension scheme.   
• Members should find out from their schemes what flexibilities are available. They could also approach their trustees to see if a PIE or BPO might be offered to broaden the range of options - and offers the potential for a ‘win-win’ for both scheme and member.