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If you have a Defined benefit pension worth more than £30,000 you will need Final Salary Transfer advice from a defined benefit pension transfer specialist before you will be able to transfer your pension. 

This rule is designed to protect those with valuable, guaranteed pensions from losing out later in life. 

For the most part, you won’t be able to match the benefits of a final salary pension once you leave the scheme. Whilst, you’ll have more flexibility and access to your money from 55, it comes with added costs and risks attached that you must be aware of.

Should I transfer my final salary scheme?

When you transfer your Final Salary Pension you go from an investment that is guaranteed for life and protected against inflation to one that is subject to all of the risks of a standard investment. When you transfer your pension you forgo all of the benefits of your pension scheme in exchange for a cash equivalent amount.

There are a number of factors that affect whether or not it might be suitable for you to transfer your final salary pension. So, if you’re wondering “should I transfer my final salary scheme?” it will depend on:

  • Your short & long-term goals
  • Your investment experience
  • The value of other assets/pension/wealth you hold
  • Your attitude to risk
  • Your aptitude for risk (i.e. can you cope if your pension value goes down)
  • Your age
Final Salary pension transfer advice article

1) Long and short-term goals

If your long and short term goals can’t be matched by staying in your final salary scheme then you might want to explore your options. Examples of long-term goals might include early retirement, leaving money to family, having a flexible income. 

Short term goals might include wanting to access your tax-free cash at 55, paying off the mortgage, funding a holiday.

2) How Your Investment Experience affects Final Salary Pension Transfer

When you transfer your Final Salary pension you forgo a protected, guaranteed income for more flexibility but with that comes risk. 

Final Salary Pensions are protected from inflation and market fluctuations but when you transfer you’ll need to manage your investments to mitigate risk.

For most people, their pension is worth more than the equity in their home, it’s important that you have a proper investment strategy in place, and don’t gamble your future on high risk or unregulated investments.

Due to the amounts of money involved, even experienced investors should only consider transferring with the ongoing advice of a trained professional. 

3) The value of other assets/pension/wealth you hold

If your final salary pension is going to be your only source of income in retirement it’s not a good idea to transfer out, even if you have a high transfer value. You need to think about your finances in the long-term.

If you have other assets or pensions that mean you’re not reliant on the income from your defined benefit pension then there may be more of an argument for you moving it.

4) Final Salary Pension Transfer and your attitude to risk

Investments can and do go down as well as up, this is investment risk and there’s no way to avoid it. In fact, even cash is guaranteed to lose value over time – due to inflation.

If you have a Final Salary Pension, you don’t have to worry about risk. 

Some people are more comfortable with risk than others. You can take a risk questionnaire to work out your risk profile.

The amount of risk you are comfortable with will affect which investment decisions you should make. Your investment decisions, in turn, could affect your ability to meet your short and long term financial plans.

5) Final Salary Pension Transfer and your aptitude to risk

This links closely to the value of your other assets and how much you could afford to comfortably lose in the short and long-term.

 If you don’t have a financial buffer in place, then even if you have a blase attitude to risk, you shouldn’t be investing in higher-risk investments that could get you higher returns, because you simply can’t afford for the value of your investment to go down in the short or long-term.

6) How your Age affects Final Salary Pension Transfer

Research shows that the closer you are to your scheme’s retirement age, the higher the transfer value you will be offered. But if you want to retire at 55 and don’t want to wait until you reach your scheme’s retirement age then you might need to consider transferring out in order to meet your other goals.

Because it’s not possible to reverse your decision to transfer out, it often does not make sense for younger individuals to do so. Whilst transfer values can fluctuate, it often makes sense for individuals to defer their decision to transfer until they are closer to their preferred retirement age.

How is a final salary pension transfer calculated

If you’re considering a defined benefit pension transfer, you’ll be given a Cash Equivalent Transfer Value or CETV. This amount is supposed to represent a fair cash equivalent for the benefits you are giving up.

There’s no set way to calculate your pension transfer value since each scheme has its own rules that set out how much you’ll get.

Most schemes will work out your transfer value based on 4 key elements:

  • The length of the pensionable service you were credited with as being an active member of the scheme i.e. how long you were working for your employer as an active member of your Final Salary pension scheme.
  • Your pensionable salary
  • The circumstances under which benefits are taken from the scheme (retirement, early payment, early leaver, ill-health, death etc.)

The formula or rate of ‘accrual’ set by the scheme administrators, which uses service and salary to work out your pension

Accrual Rates: How do they work?

Your accrual rate will depend on the scheme you are in – could be 1/60, 1/80 or some less generous schemes could use 1/125. What this means is that for every year you have worked for the company you’ll get either 1/60th, 1/80th or 1/125th of your final annual salary. 

The example opposite shows how your accrual rate could affect how much money you get in retirement.

accrual rate example final salary pension
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Is it wise to transfer a Final Salary Pension

For the vast majority of people with a Final Salary Pension, it’s not a wise move to transfer out of it mainly because 

  • Final Salary Pensions provide a guaranteed income for life
  • Final Salary Pensions are adjusted for inflation every year
  • It’s not normally possible to match the financial value of a final salary pension with an annuity
  • It may not be possible to match the financial value of a final salary pension through investing
  • There are costs and risks involved in transferring your pension

However, there are some cases where an argument could be made that a transfer would be in your best interests:

  • if you’re not reliant on your final salary pension for income in retirement and you:
    • have a more immediate need for the money
    • need to manage your tax-liability
    • wish to leave money tax-efficiently to someone other than a spouse
  • You have ill health and a reduced life expectancy
  • You want to retire early before your scheme’s pensionable age and it makes financial sense for you to do so.

Can I take my final salary pension at 55?

It is now possible for those with a defined contribution pension to access their money from 55. Final Salary schemes however, were not designed with early retirement in mind. That said, you may have the option to take early retirement with your scheme. 

Because Final Salary Pensions are guaranteed for life, your pension scheme administrator will reduce the amount of money they’ll pay you every year based on the fact they’ll be paying out your pension for longer.

Each scheme will have a different way of working out how much you’ll get, some will be more generous than others but in some cases, they may discount your pension by such a large amount that it may make more sense to transfer out and invest your money.

The closer you are to scheme’s retirement age, the less your pension will be discounted by. It is always worth talking to your pension scheme administrator to find out how much you’d get before you start exploring a pension transfer.

N.B. Your pension scheme will usually discount both your pension AND any cash lump sum that you would have received. It’s important to factor both of these into your decision.


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Final Salary pension transfer value

Your Final Salary Pension Transfer value also known as a Cash Equivalent Transfer Value or CETV is calculated by your pension scheme administrator and is based on a number of factors that include: 

  • Your Age
  • Scheme Retirement Age
  • Cost of Living
  • Life Expectancy of the average member 
  • Scheme investment costs & returns
  • The pension scheme solvency

Your transfer value may go up or down based on these factors. 

In recent years many people have seen their Final Salary pension transfer values soar as gilt yields have fallen. Gilts are a low-risk government bond that many pension schemes have invested heavily in. 

As the yields drop, it becomes more expensive to provide benefits to Pension holders, so transfer values, which must represent a fair equivalent value, have risen.

It is important to note that pension schemes do not publish their method for calculating transfer values, don’t assume that your transfer value will rise just because gilt yields have fallen – we have seen cases where this happened but we have also seen cases where the opposite was true.

Want to find out how much your final salary transfer value could be? Use our CETV calculator

Final salary pension transfer advice cost

You’ll normally be facing 3 types of costs for final salary pension transfer advice.

  1. Transfer analysis and advice fees
  2. Cost to transfer your pension
  3. Ongoing advice fees.

The first cost relates to the analysis and advice you’ll need to transfer your pension. 

If you receive a positive recommendation to move your pension you’ll then pay a fee for the financial adviser to move your pension for you. This may include setting up a new pension for your final salary pension to be moved to.

Many pension and SIPP providers will only accept a pension transfer where a positive recommendation to transfer has been given. 

Lastly, there will be the ongoing cost of managing your pension and investments for you and providing ongoing financial advice. 

Due to restrictions placed on us by the Financial Conduct Authority and our insurers, it is no longer possible to provide a positive recommendation to transfer unless ongoing advice is being given.

A full breakdown of Final salary pension transfer advice costs can be found in this article.

Final Salary pension transfer specialist

If your Final Salary Pension is worth more than £30,000 you’ll need to seek advice from a pension transfer specialist before you will be able to transfer your pension.

Your pension transfer specialist will need to conduct an in-depth evaluation of your 

  • Retirement goals
  • Financial situation
  • Investment experience
  • Risk Appetite 
  • Risk Aptitude 

And also conduct financial modelling to stress-test whether your goals could be met under different financial situations. 

They will need to provide you with a detailed report laying out their findings and personal recommendations. 

It is highly specialist work (only around 5% of financial advisers hold the qualifications necessary to give this advice). 

Changes to the rules around final salary pension advice mean that transfer specialists must also hold the relevant qualifications to offer investment advice too.

A pension transfer specialist will show you what options you have to meet your goals. More importantly for most, they’ll also show you what alternative actions you could take to meet your goals if you decide not to transfer your final salary pension.

At 2020 Financial, we pride ourselves on providing unbiased independent financial advice, we are pension specialists who conform to Pension Gold Standard for pension transfer advice. But more than that, we care about your future. 

We believe that financial planning can be fun.  We take a straight-talking, no-nonsense approach and break down complex subjects into easy-to-understand concepts so that you can make an informed decision that feels right for you.

 If you’d like to speak to a Pension Transfer Specialist book a free discovery call today.

Simon Garber, DIP PFS | Pension Transfer Specialist | Southampton

About the Author

Simon Garber DIP PFS is an Independent Financial Advisor and Qualified Pension Transfer Specialist. He is the Managing Director and Founder of 2020 Financial, based in Southampton, Hampshire. Simon specialises in Pensions and Retirement planning and is a later life planning specialist. He also holds qualifications in investment and life insurance and is a member of the Personal Finance Society and Chartered Insurance Institute.

Simon is passionate about providing the highest standards of customer care and transparency. 2020 Financial were awarded the Pension Gold Standard in 2019. You can find out more about Simon here.

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If you are looking for an Independent Financial Adviser, the first step is to contact us for an initial consultation.

You’ll be able to talk directly to our senior Financial Adviser and Pension Transfer Specialist Simon Garber. Simon has over 15 years experience in the industry so he’ll be able to answer any questions you have and address any concerns.

If you decide to proceed we’ll set up a meeting, this can be over the phone or in person, either at your home or at our offices.

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Research by International Longevity Centre-UK (ILC-UK), 2017

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ILC-UK, 2017


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Pension Transfer Resources

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