Should I Transfer My Final Salary Pension?

You may be asking “should I transfer my Final Salary pension?” (or Defined Benefit pension as they are also known).

This is becoming more common as transfer values offered by previous employers are at historically high levels. And because the pension freedom rules provide much more flexibility.

But is it right to transfer such a valuable benefit to a personal pension?

The starting point for should be ‘No’. By transferring away from a Final Salary pension, you are giving up the right to a guaranteed income for life. One that increases in line with inflation every year and will typically provide a guaranteed, inflation linked pension worth 50% of the starting pension for a spouse or dependent on death.

The cost of replacing that income through a personal pension is much more expensive and exposes you to investment risk.

For most people, this guaranteed income will be a significant part of their retirement income. Giving it up would be foolish.

But in some circumstances it might be appropriate:

For instance, you might have significant wealth and not be reliant on the Final Salary pension.

Or you might expect to work in retirement so don’t need the income immediately and don’t want to pay too much tax.

Alternatively, the ability to vary your taxable income may be important.

You may also be comfortable taking more investment risk and have enough time to increase the value of the pension fund to generate benefits greater than those you are giving up.

You may wish to have the pension fund passed down to children on your death rather than it cease on the death of you or your spouse.

If you have a severely reduced life expectancy, transferring could provide more income sooner and it wouldn’t halve in value when you die.

Or, it may be that you are unmarried so a guaranteed spouse’s pension isn’t important.

None of these reasons may be enough on their own, but they could indicate that giving up the guaranteed benefits of the final salary pension may be worth investigating.

This a highly complicated area of advice; you certainly shouldn’t take any action without getting advice from a qualified and experienced expert.

For most people not transferring is undoubtedly the best advice.


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