Should you transfer a final salary pension?
For most people, the FCA and The Pensions Regulator believe keeping a defined benefit pension is in their best interests. A transfer gives up valuable guarantees and is usually irreversible.
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What do you give up?
A defined benefit pension normally provides guaranteed lifetime income and often inflation protection and dependant benefits. Moving to defined contribution replaces those guarantees with an investment pot whose value and future income can rise or fall.
What risks move to you?
After a transfer, investment performance, withdrawal decisions and the risk of running out of money become much more important. The transferred pot can fall as well as rise.
Advice may be required by law
Where safeguarded benefits exceed £30,000, regulated financial advice is generally required before a transfer to a defined contribution scheme can proceed.
Do not rush or respond to cold approaches
The FCA warns consumers not to transfer because colleagues are doing it or because an unsolicited company creates urgency. Take time to understand the benefits that cannot be recovered once surrendered.
Start with the benefits you would give up
A final salary pension is a form of defined benefit pension. Its value is not captured by comparing a transfer amount with an investment account balance. You need to understand the promised income, when it begins, how it may increase and what benefits continue for dependants under the scheme's rules.
The FCA says most people are likely to be better off keeping their defined benefit pension. Transfer suitability depends on the individual's circumstances and the benefits exchanged. Flexibility or a large quoted value is not enough on its own to establish a case.
Collect actual scheme information rather than relying on an online estimate. If retirement timing or a lump-sum choice is the real question, ask whether it can be addressed within the scheme without considering a transfer.
Test the reason for transferring against alternatives
Write down what the transfer is intended to achieve. Is it access, a different pattern of income, family provision or another objective? Ask whether other household assets could address the need while retaining the scheme benefits.
An illustrative person may want money for a one-off expense but also rely on the pension for essential retirement income. The assessment must consider both objectives and the resources available. Solving the immediate expense by giving up long-term security is a trade-off that cannot be evaluated from the transfer value alone.
Compare the proposed destination's risks and total charges. A projection showing an attractive investment outcome is not a guarantee that the transferred money will provide the same income for life. Ask about weaker returns, a longer life and withdrawals during market falls.
Recognise the safeguards and the limits of an enquiry
Advice is generally required before transferring safeguarded benefits worth more than £30,000 into flexible benefits. The firm's specialist permissions and the actual transaction need checking. An introductory conversation or general pension article does not satisfy that assessment.
Understand the fee even if the recommendation is not to transfer. Do not seek repeated opinions simply until someone agrees with a predetermined outcome without addressing earlier concerns. If recommendations differ, compare the facts and reasoning.
Never allow unsolicited contact, a promised return or an expiring offer to substitute for the process. Once benefits have been transferred away, restoring the original position may not be possible. The decision deserves a complete explanation you can understand before any instruction is given.
Sources and further reading
FCA - Considering a defined benefit pension transfer ↗
MoneyHelper - Defined benefit pension transfers ↗
