Can I transfer out of a final salary pension scheme?

I am a member of my employer’s defined benefit pension scheme and have heard that with the new pension freedom rules it may be worthwhile leaving this final salary scheme and transferring into a money purchase pension.

I wanted to know whether this is possible with final salary pensions and what the pros and cons would be?

Question asked by Jonathan Purley
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Answered by Neil Adams

 

Who can’t transfer from a defined benefit scheme?

Retired members of defined benefit schemes who are already receiving payment of their benefits are barred by law from making transfers to defined contribution schemes.

Transfers from unfunded public service defined benefit schemes are also prohibited. These cover somewhere in the region of five million UK residents and include the pension schemes for the NHS, teachers, the armed forces, the civil service, police and fire service.

Can I leave my final salary pension scheme?

The exclusion also extends to the 30,000 or so members of smaller unfunded schemes such as those run for MPs, the judiciary, research councils and the UK Atomic Energy Authority.

By contrast, it is possible to transfer out of funded public service defined benefit schemes. So if you’re looking to transfer out of the Local Government Pension Scheme then it may be possible, subject to certain safeguards.

 

Transferring out of private sector final salary pension schemes

Transfers from private sector defined benefit schemes are still permitted subject to certain requirements.

The biggest such requirement is that individuals seek professional pensions advice for the final salary pension transfer from an adviser who is independent from the defined benefit scheme and authorised by the Financial Conduct Authority (FCA).

Note that this requirement to seek financial advice doesn’t apply to scheme members with a pension pot of less than £30,000 as the ‘trivial commutation’ rules apply to situations like this.

The key benefits of any transfer to the defined contribution regime are:

  • the opportunity to take your benefits as and when they’re needed
  • the ability to keep your pension pot invested
  • to keep contributing to your fund (even after you start taking your benefits)
  • to pass on your remaining pension wealth to your chosen beneficiaries.
 

Is the time running out for me to transfer out of a defined benefit scheme?

For those considering the transfer of a deferred final salary scheme pension, the real issue is whether they’ll be better off if they transfer the cash value of this pension pot to a defined contribution arrangement such as a personal pension or a SIPP.

Final salary pension transfer values, known in the business as cash equivalent transfer values or CETVs, have recently been at record highs. That means there’s rarely been a better time to consider transferring out of your final salary scheme.

To get an idea of the lump sum you might get for leaving your final salary pension, the Drewberry Final Salary CETV Calculator can calculate a ballpark figure for you.

Is there a limited window to leave my final salary pension?

However, although timing might be a factor when it comes to reinvesting the proceeds of the transfer, it’s generally best to avoid trying to ‘time’ market investments.

For those who are still active members of a final salary arrangement, timing is far more important. Thanks to the greater security and indexation they offer, and the fact that transfer values can often be less than the net present value of the benefits, most private sector defined benefit scheme members are likely to be better off if they remain within their schemes for as long as possible.

For those who, after receiving advice, decide that it’s in their best interests to transfer, the timing of the move will have a significant impact on the value of the transfer.

Get expert DB pension transfer advice today

Final salary pension transfer advice

Expert pensions adviser Neil Adams can help you decide if a final salary pension transfer is right for you

Although it’s compulsory for all savers with a final salary scheme worth more than £30,000 to seek professional financial advice before transferring out, not every financial adviser is qualified to provide transfer advice. Those who are have completed rigorous training and secured professional qualifications.

I myself hold these qualifications and have many years of experience in this field. If you would like to consider your options please don’t hesitate to call me on 02084327333 or email me at neil.adams@drewberry.co.uk.

Neil Adams
Pension Specialist at Drewberry

pension transfer advice
 
defined benefit pension scheme
 
final salary pensions
 
This information does not constitute financial or other professional advice. You should consult your professional adviser or contact us directly on 02084327333 should you require financial advice. It is important to ensure any insurance policy you take out is suitable for your needs.
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