Common Questions About Final Salary Pension Transfers

Your Financial Plan

A final salary pension scheme is a type of defined benefit (DB) pension. It provides a guaranteed income for life from your former employer’s pension scheme based on your salary at retirement.

A DB pension represents the gold standard of retirement savings. Benefits include:

  • Guaranteed income for life (and usually for the life of your spouse / civil partner as well)
  • A pension that’s index-linked and therefore protected from inflation
  • No investment risk on your retirement income
  • Usually a lump sum death benefit for your widow(er) and dependents (for dependents this is up to a certain age)
  • Protection from the Pension Protection Fund.
You can transfer out of your defined benefit pension in exchange for a cash equivalent transfer value (CETV) invested in a defined contribution (DC) pension. However, it’s very hard to replicate the above benefits in a DC scheme. Leaving a final salary pension is therefore right for only for a minority of people.

Is a Final Salary Pension Transfer Right for Me?

In most cases, the answer is no. While many defined benefit pension schemes are currently offering high CETVs that may appear attractive, the reality is that final salary pensions have too many benefits unavailable with the alternative (a cash lump sum invested in a DC pot).

For instance, if do transfer out of your final salary scheme, risks you’ll face include:

  • No income guarantee, so your savings could run out before you die
  • Depending on how you choose to take your pension, you might face investment risk on your savings, so their value could fall as well as rise
  • You might be worse off in retirement after a transfer
  • You can’t change your mind after a DB pension transfer.

Who Might Benefit from a Pension Transfer?

However, there are some people who might benefit from leave their final salary scheme. For example, those who:

  • Face a shortened life expectancy due to illness, where a guaranteed income for life is of very little value
  • Are comfortable taking on investment risk in retirement
  • Want the flexibility to leave unspent funds in their pension pot, rather than an income, to their loved ones
  • Are seeking greater income flexibility, perhaps to manage tax bills by adjusting the amount they take from their pension each year
  • Are not solely reliant on their final salary scheme for a retirement income.

To transfer out of your defined benefit pension, it’s a regulatory requirement to seek advice from an appropriately-qualified professional, such as one of the team at Drewberry, if your pension is worth more than £30,000.

What Does Final Salary Pension Advice Involve?

When providing advice on your final salary pension, it’s important to look at your needs holistically. We won’t just look at your DB pension. We’ll also take into account:

  • Any other pension savings you have
  • Other income you’re expecting to receive in retirement, such as from property or non-pension investments
  • Your income requirements in retirement
  • Your family setup, such as whether there’s anyone you want to benefit from your pension pot
  • When you want to retire
  • Your attitude to risk.

After an initial discussion about your retirement goals and aspirations, we’ll firstly request pension projections, CETVs and the like from your pension schemes and other revenue sources. Unfortunately this information often takes a while to come back, but we chase as often as necessary.

Once we’ve got all the information we need, we analyse your circumstances. If we then feel that transferring your final salary pension is right for you, we’ll provide you with this recommendation.

The next step is to liaise with your scheme administrators to ensure the transfer process is as smooth as possible. You’ll speak to one adviser from start to finish who’ll keep you informed every step of the way.

Your Financial Plan

A DB pension — whether you transfer it or not — is usually only one element of your retirement. It therefore pays to look at your circumstances in the round to get the full picture.

At Drewberry, we do this with sophisticated financial modelling software which builds you a financial plan. This is a visual expression of your retirement goals, dreams and aspirations, showing you where you might end up depending on decisions you take today.

What Affects the Value of My Final Salary Pension?

A final salary pension is a guaranteed income for life based on the salary you earn at retirement. It’s a type of defined benefit pension (another is a career average pension, which is based on an average of your salary across your career).

The pension you receive in retirement is in no way linked to the underlying investment performance of the scheme. Pension providers simply base it on your:

  • Years of service you’ve spent at that employer contributing to their DB pension plan
  • Pensionable earnings (either your final salary at retirement or an average of your earnings across your career)
  • Pension scheme’s accrual rate (the proportion of your earnings you’ll get for each year spent in the scheme, usually represented as a fraction, for example 1/80th).

We’ve laid out an example in the table below of how your pension administrators might calculate the value of your annual DB pension income.

Defined Benefit Pension Calculation

Years in the Scheme

30 years

Pensionable Earnings

£60,000 final salary

Scheme Accrual Rate


30 years * £60,000 * 1/80th
Annual DB Pension Income: £22,500

What Impacts the Value of My CETV?

While there are very few external factors that impact your annual DB retirement income, it’s another matter entirely for CETVs. These are the lump sums invested in a DC pension that schemes offer members to leave the guarantees of their final salary pension behind.

Rising Longevity

In many cases, final salary pensions are struggling. They must pay pensioners an income for life at a time when people are living longer than ever before. Schemes therefore pay out for much longer as a result.

Poor Investment Returns

All this comes at a time of record-low interest rates and ultra-low yields on government bonds. The investment performance of the funds DB schemes use to pay pensioners has therefore been poor, especially since the 2008/09 financial crisis.

Schemes therefore now have longer liabilities (pension incomes) than they planned for at a point where the return on investments necessary to pay these incomes is poor. This has played a major part in rising CETVs — pension plans are seeking to shift liabilities off their books.

Low Annuity Rates

Another big factor is that a CETV represents the amount of money you’d need to buy an equivalent pension to your forfeited final salary income on the open market. This is usually via an annuity.

With record low annuity rates due to the above investment performance issues, it now costs more than ever before to buy an equivalent pension income to what your DB scheme would offer.

How Would Early or Late Retirement Impact My Annual Pension Entitlement?

As seen above, your DB pension income depends on the number of years you spend with your employer contributing to their DB scheme.

If you retire early or later, the number of pensionable years in the scheme goes up or down. This changes the calculation.

Also, if you defer your pension and retire later than the scheme’s normal retirement age (often 60 or 65), you may be entitled to a higher income when you do take it. Your scheme should lay out whether this applies to you.

Can I Take My Final Salary Pension at 55?

With defined contribution pensions, you get access from the age of 55 onwards. However, if you have a DB pension, the scheme’s rules dictate when you start receiving benefits. This might be 60 or 65, which makes it difficult to retire early.

You may be able to take your final salary pension at 55 in certain circumstances. However, this would usually be subject to a reduction known as an early retirement factor. This means you’ll receive less income each year than you’d get if you waited until the scheme’s normal retirement age.

You may be able to access your pension early if you face ill health. Here, your pension scheme may pay an enhanced pension to compensate for the fact that you’ll likely receive an income for fewer years than the average pensioner.

Yet as you’ll have fewer years in the scheme and your pensionable earnings at retirement will also likely be lower, you could still face a reduced pension as a result of retiring early due to ill health.

Have I Got Enough Money to Retire?

Ultimately, this depends on the retirement you’d like to have. Each individual has different priorities. For example, would you like to spend more on hobbies or travelling now you’re not working and have the free time?

Or are you fine with a more modest retirement, which puts less of a strain on your retirement savings?

It’s also worth considering that your income needs might rise as you get older if you have to pay for care.

jonathan cooper, senior paraplanner at drewberry

We’ve put together a guide on a good pension pot to have at 55. It offers examples of the pension pot you’ll require if you’re exchanging it for an annuity, as well as what you might need to fund your retirement with income drawdown. However, this only offers a generic overview. For personal financial planning tailored to your circumstances, we’ll be happy to help

Jonathan Cooper
Head of Paraplanning at Drewberry

The Importance of Good Financial Planning

Cashflow modelling and other financial planning is essential to work out if you have enough saved up to retire when you want to. The team at Drewberry has all the tools necessary for this in-house. This lets us run various scenarios to see if you can afford to have the retirement you deserve.

Financial advice is also hugely important. Numerous studies indicate the positive impact financial advice has on the value of pension wealth. For example:

Get Expert Final Salary Pension Transfer Advice

Deciding whether or not a final salary pension transfer is best for you is complicated. It’s an area where it’s important to receive high quality advice to ensure you’re making the right decisions.

That’s where the team at Drewberry can help.

Why Speak to Us?

We started Drewberry because we were tired of being treated like a number. We want to give you as our client the service you deserve when discussing matters as important as planning your financial future.

Below are just a few reasons why it makes sense to let us help:

  • See your financial future
    Our sophisticated financial modelling technology visually maps out your financial future. Get a living financial plan that clearly shows what you can achieve depending on the decisions you make — read more here.
  • Achieve the retirement you deserve
    Can you afford that dream round-the-world trip? Can you help your children onto the property ladder? We’ll model your goals and build your financial plan to help you achieve them.
  • Our expertise saves you time and provides peace of mind
    We take care of it all, from organising your pensions, investing your assets, managing risk and making the most of your tax allowances.
  • We’ve got bargaining power on our side
    This allows us to negotiate better rates for you than dealing with providers yourself.
  • You’ll speak to a dedicated expert from start to finish
    You’ll speak to a named expert with a direct phone line and email. No more call centres and machines asking you to press this and that — you’ll speak to someone who knows you.
  • Benefit from our 5-star service
    We pride ourselves on providing 5-star service, as seen in our 3787 and growing independent client reviews rating us at 4.92 / 5.
  • Gain the protection of regulated advice
    Our regulated advice service means you are protected. We’re responsible for the decisions we help you make. Doing it yourself or going direct to a provider doesn’t offer this protection, so you won’t benefit from these securities.

For help and advice, please don’t hesitate to give us a call. You can reach us on 02084327334 or email

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