A guide to a final salary pension transfer

Final Salary Pension Transfer Values | April 2024

Upon retirement, you may face several decisions regarding your finances and how to maintain a reliable income.

There are many different ways in which you can do this, with final salary pension transfers a potentially beneficial option depending on your circumstances.

Final salary transfers do have an element of risk, so it is important to understand their intricacies and potential drawbacks to allow you to make more informed decisions in the future.

Topics that you will find covered on this page

This article will seek to provide advice and answer any relevant questions, including:

  • What is a final salary pension
  • What is a final salary transfer pension? – we will provide an outline to help you understand how it works if the value of your pension is greater than £30,000
  • Should I transfer my pensions? – we weigh up the advantages and disadvantages this could have for you
  • Where can I find pension transfer advice?  
  • Should I transfer my final salary pension to a SIPP? – We define what a ‘SIPP is, and provide information on the eligibility to transfer your pension into one
  • Where can I find a final salary pension transfer value calculator? 

Background to a Final Salary Pension Transfer

A Final Salary Pension, also known as a Defined Benefit Pension, is a type of pension scheme largely offered by employers. It provides a guaranteed retirement income based on your final salary and the amount of time you have worked for the company.

Defined benefit pensions are run by trustees who oversee management of the scheme. This means that the employer and trustees are jointly responsible, guaranteeing that there are sufficient assets to meet future pension payments.

Over the past couple of decades, these pensions have become less common in the private sector. This is because they can be expensive for employers to maintain. As a result, some people may be considering transferring their final salary pension to a Defined Contribution scheme or Personal Pension after assessing the pros and cons. 

A final salary pension transfer involves moving your retirement savings from a defined benefit pension scheme to a defined contribution scheme. It can be a complicated process and it always requires careful consideration, typically alongside the advice of a financial adviser.

The amount which you receive when you transfer a defined benefit pension is known as the Cash Equivalent Transfer Value (CETV). It is important to note that this value might be less than what you could have received if you stayed in the original pension scheme. 

It is necessary to understand that final salary pensions may come with certain restrictions, such as prohibiting lump sum withdrawals or reducing payments if you retire early.Although they provide a guaranteed income, they offer less flexibility than defined contribution pensions.

What is a final salary pension?

A final salary scheme, also known as a defined benefit pension, can provide a guaranteed income for the rest of your life following your retirement. The value of your defined benefit is calculated using a percentage of your salary at the point of your retirement, which is then multiplied by the number of years you have been in the scheme.

Unlike a defined contribution (also known as money purchase schemes) wherein an employer or employee make regular contributions to a savings pot, the amount you receive under a defined benefit scheme is guaranteed and paid directly to you.

There are two types of defined benefit schemes, these are:

  • Defined benefit schemes – these depend on how much you are paid when you actually retire, although other factors are taken into account when the final sum is calculated.


  • Career average schemes – these depend on your averaged salary across your whole career. Here in the UK, this form of scheme has been introduced as an alternative to defined contribution and defined benefit schemes.

What is a final salary pension transfer?

Typically, you will get access to your defined benefit pension at either your scheme’s normal retirement age or earlier if you take early retirement. Usually, this may be set at 60 or 65 years old and is the age at which your employer, via the pension scheme and Trustees would begin to pay out your benefits.

It may be possible to defer the age you begin to receive your benefits, and by holding off on receiving these benefits until a later age, you could experience an increase in your yearly income post-retirement.

Generally, the rules regarding this vary between schemes, so it is worth checking with your scheme before making any decisions.

However, a defined benefit transfer involves you waiving your right to a guaranteed income in exchange for a lump sum paid to a different pension arrangement. This lump sum, known as your pension scheme’s cash equivalent transfer value (CETV), would then typically be invested in a money purchase scheme.

If the transfer value is greater than £30,000 then you will need to take financial advice from a pensions specialist.  Whoever you transfer your money too will want to see evidence that you did take financial advice.

The cash equivalent transfer value (CETV) is a lump sum intended to be equivalent to the cost of the same pension that would have been provided to you and is determined by several factors including your age, accrual rate, life expectancy and salary when you retired.

The cash equivalent transfer value is then typically invested into either a personal or stakeholder, a pension drawdown vehicle, a scheme held by another employer or a self-invested personal pension, also known as a SIPP.

By agreeing to a final salary transfer, you are acknowledging the associated risk factors, especially if the cost of securing your income is higher than anticipated, leaving you unable to match the benefits that would have been provided by the ceding scheme.

As a result, you may find yourself being financially worse off throughout your retirement should you opt for a transfer than if you had remained a member of the scheme.

This is not to say that you would be worse off in transferring your pensions, since the cost of securing an income may be lower than anticipated, and your fund’s value could increase in the future. 

You may also have other reasons for transferring, such as inheritance tax planning, so the security of income may not be your primary need.

Should you have a defined benefit in the private sector, then it is likely that you are able to transfer your fund out. However, this may not be the case if you are in a public sector scheme or if the pension has been moved in a Pension Protection Fund  (PPF) as a consequence of funding issues.  

Those who work in the public sector are often members of final salary pensions. For instance, this can include those who work in the NHS, the police force and the army among more. Despite this, public sector workers are often part of unfunded schemes, where the pensions they receive are from the government rather than their direct employer.

Consequently, it is not possible to transfer in this case as the schemes are unfunded.

As a result, it is entirely dependent on your scheme whether or not you are able to transfer your pension, so it is worth checking with the scheme and trustees.

pension transfer

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Should I transfer my pension?

By transferring, you may be unable to unlock much needed cash from it, which you could use to pay off any debts and provide a valuable retirement income. However, the process is risky and you should always weigh up the advantages and disadvantages of such a decision.

Often regarded as golden pensions, a defined benefit pension will provide guaranteed retirement income, with yearly inflation increases and spouses benefits making the scheme an attractive option to those approaching retirement age.

If you have taken a transfer out to a money purchase type arrangement then in order to receive an income for life, that could increase with inflation, you would need to buy a pension annuity. An annuity is a form of insurance which can allow you to exchange your retirement savings for an income for life.

Benefits of Transferring Your Pension

There are several potential benefits to transferring your pension.

Firstly, flexibility and control is offered with a defined contribution pension. This is because you can choose to take a tax-free lump sum at the age of 55, or you could opt for drawdown. With this option, you can take out money as and when you need it.

In addition, there are appealing inheritance options with final salary pensions.

Typically, they offer a spouse or civil partner a pension should you die, although this often doesn’t extend to children. With a defined contribution pension, you can pass on any unused pension savings to your heirs, free of inheritance tax.

A further benefit to consider is the potential for growth of your pension pot. If your pension pot is invested wisely in a defined contribution scheme, it could grow more than it would in a defined benefit scheme.

Risks Involved in Pension Transfers

Transferring a final salary pension also comes with potential risks which should also be considered. 

To begin, final salary pensions come with the potential to lose guaranteed benefits. By transferring out of a defined benefit scheme, you give up a guaranteed income level for life. Consequently, this is usually indexed or linked to inflation

Moreover, there is a risk associated with a defined contribution scheme’s investments.

This means that your pension pot is invested, and its value can fall as well as rise. This could mean that you end up with less money in retirement than you expected.

Another risk to consider is how long you need your funds to last. If you live longer than expected, you could run out of money if you’ve transferred to a defined contribution scheme. With a defined benefit scheme, your pension pays out for the rest of your life.

Finally, transferring your pension can involve fees and transaction costs which reduce the amount invested in your new pension plan.

It is important to note that defined benefit pensions are valuable due to the set income they provide.

However, it is necessary to ensure that you can replicate this income reliably from your transferred savings before giving up guaranteed benefits.

Below are some of the advantages and disadvantages associated with pension transfers:


Access to guaranteed income with more flexibility

The pension reforms of 2015 may mean you could be entitled to transfer from a private scheme to a money purchase scheme and take advantage of the freedoms that were provided.

This alteration to the pension freedoms has offered a new retirement option for thousands of people while resulting in a spike of transfers from defined benefit to money purchase schemes.

You may be able to avoid inheritance tax

If you were to die prior to turning 75, any funds remaining in your pension pot are inheritance tax free. If however, you pass away over the age of 75, the funds can still be inherited by your beneficiaries, but they are subject to income taxation at their marginal rate.

You can capitalise your assets

By transferring, your retirement pot changes from a being a theoretical amount to a cash amount, which gives you and your family a lot more flexibility. 

You may have investment opportunities

By doing a transfer, you may be able to invest your funds elsewhere as a result of the increased flexibility. For instance, you could invest some funds in more adventurous investments, investment bonds or your beneficiary’s future, such as education and healthcare.

transfer pension pot


The Financial Conduct Authority advise against it

The Financial Conduct Authority suggests that in the majority of cases, by transferring you are more likely to be financially worse off.  However, as always it depends on your individual circumstances so in some cases you may be better off in transferring.

You are liable to lose your guaranteed income

By transferring away, you will lose all of the guaranteed benefits that are associated with your scheme.

If you move to a money purchase scheme, life expectancy may mean that your money runs out.  Under a final salary scheme, your income would have been guaranteed for life.  

As a consequence, it is important that you consider the benefits and guarantees provided by your scheme before choosing to transfer away. Getting financial advice will help you decide whether you can afford to lose the guarantee.

Transferring your pension is not risk-free

By opting to transfer, you are choosing to move it to an investment of your choice. Once invested, you are putting your income at risk, and your income is dependent on the success of your investments. Of course, it is absolutely recommended that you take financial advice from a transfer specialist before you undertake any investment decisions.

You will lose protection on your pension

Once you have transferred, any benefits provided by the Pension Protection Fund are lost. The Pension Protection Fund is a scheme that acts as a backup to support you if your employer’s scheme should fail.

Should I transfer my final salary pension to a SIPP?

Known formally as a self-invested personal pension, a SIPP is a form of investment vehicle you can transfer your pensions into. When looking to transfer your money it is therefore only natural to think about whether you should transfer your final salary pension to a SIPP.

Generally, you may find that you will be financially better off remaining in a defined benefit scheme instead of transferring your pension into a SIPP.

This is also supported by the Financial Conduct Authority, who suggest pension transfer options are risky and could leave you at risk of old-age poverty going forward. This is obviously dependent on your financial circumstance.

In order to transfer to a SIPP from a defined benefit pension scheme, you have to gain a cash equivalent transfer value from your last employer. Before you transfer into a SIPP you should certainly take some advice.   

The advisor will help you understand whether the transfer is offering you value and whether transferring out of your scheme is the right choice for your situation.

final salary pension lump sum advice

Final Salary Pension Transfer Process

If you choose to transfer your final salary pension, there will be several steps in the process. First, you’ll need to request a statement of your future pension benefits from your current scheme. This will include your Cash Equivalent Transfer Value.

If your pension transfer value is over £30,000, it is a legal requirement to take regulated financial advice.

In order to understand the implications and determine whether transferring is suitable for your situation, it is important to seek advice from an independent financial adviser.

If you decide to proceed with the transfer, your adviser will guide you through the process.

Consequently, they will help you to choose a new pension scheme, complete the transfer paperwork, and make investment decisions for your pension pot.

Where can I find final salary pension transfer advice?

If you are thinking about transferring out of a pension scheme, it is worth turning to a pension transfer specialist for financial advice to aid you in your investment decision.  

Professional financial advice can also help you in finding secure investments with low risk, should you opt to transfer out of your pension scheme.

Where can you find a final salary pension transfer value calculator?

These days, there are many sources on the internet that can calculate whether or not the cash equivalent transfer value is representative of good value and whether or not transferring is a sensible option.

That said, it is not a requirement to know your cash equivalent transfer value at hand when calculating, and an estimate can be generated using the annual pension income you should receive.

Final Salary Scheme versus Money Purchase

In a final salary scheme, your pension income is determined by your final salary and how many years of service you have offered. This type of pension scheme provides a guaranteed income for life, which many people find appealing as it can offer financial certainty in retirement. 

Alternatively, a money purchase pension, also known as a defined contribution scheme, depends on the amount you and your employer contribute, and how well your investments perform. Once you reach retirement age, you will be able to access your pension pot and decide how you wish to use it. 

Tax Implications of Pension Transfers

It is necessary to recognise the potential tax implications of transferring a final salary pension. If you decide to transfer, you can typically access up to 25% of your pension savings as a tax-free lump sum from age 55.

However, you will need to pay income tax on any remaining withdrawals. 

Consequently, understanding your specific financial circumstances and seeking guidance from financial advisers is vital before making a transfer. This will help you to understand the potential tax implications and how it might affect your long-term financial plans.

Role of the Pension Protection Fund

The Pension Protection Fund (PPF) plays a significant role in protecting pension benefits.

For instance, If your employer goes bust and cannot meet their pension commitments, the PPF will typically pay out compensation to keep you protected. 

It should be noted that the PPF does not cover defined contribution pensions. Instead, it only protects defined benefit schemes, including final salary pensions. This should be considered when thinking about transferring your pension. 

A Case Study On a Final Salary Pension Transfer

The following is a case study to bring the concept of Final Salary Pension Transfer to life.

This real-world scenario could prove relevant to those considering such a move and who are looking to understand the potential consequences and benefits.

John is a 57-year-old public sector worker who’s been part of a final salary pension scheme for the past 30 years. Consequently, John is considering a defined benefit pension transfer to a personal pension scheme for more flexibility, and maybe a tax-free cash lump sum. 

John has a sizable pension from his final salary. The guaranteed income offered by the plan, which offers him long-term financial security, has always drawn him in.

However, he’s been considering the various benefits of transferring his pension fund into a personal pension.

John begins by requesting the cash equivalent transfer value (CETV) from his pension provider. Upon receiving this, he’s surprised to see the lump sum amount. This amount is tempting, given the potential tax-free benefits and the ability to invest it as he wishes.

Following this, John consults a financial adviser from the Personal Finance Society to understand the implications of the transfer. They discuss the scheme rules, potential growth from leaving your pension pot invested in the market, the risk of losing guaranteed final salary income, and the tax implications.

John also becomes aware of the Pension Protection Fund (PPF) and its role in safeguarding defined benefit pension schemes. Consequently, he understands that transferring out of his final salary pension scheme would mean losing this protection.

After careful thought and consideration, John decides to transfer his final salary pension. Although he knows this might be a risk, he has other assets to rely on and feels that the flexibility of a personal pension outweighs the guaranteed income from his final salary scheme.

Key Takeaways 

Summarising the key aspects of Final Salary Pension Transfers will help you to make note of the most important information. 

– A defined benefit pension, often known as a final salary pension, offers a lifetime income guarantee. Typically, it is determined by your years of employment and pay.

– Converting a final salary pension to a defined contribution plan or personal pension might provide flexibility, and possibly a lump amount that is tax-free. However, it’s important to remember that this decision can also come with risks.

– Defined benefit pension plans are protected by the Pension Protection Fund (PPF). If you move out of your final salary pension plan, this protection disappears.

– The cash equivalent transfer value (CETV) is the lump sum amount you will receive if you decide to move your pension to another scheme. Understanding this value is important, as it may be less than what you might have received had you stayed in the original pension scheme.

– Any decision to transfer a final salary pension should be made with the advice of a professional financial adviser. This is also legally required for transfers over £30,000.

To conclude, transferring a final salary pension is an important decision, as it can affect your retirement income stability in the long run.

Potential advantages include tax-free lump amounts and more freedom, but they must be balanced against disadvantages such as losing protection from the PPF and a fixed income.

Meet the author

Rob Atherton

Rob Atherton

Rob writes and edits the content produced by the rest of the team. He has a degree in History from Leeds University and has producing, reviewing and editing the site since 2016

Meet The Team


1. How does a final salary pension work?

A final salary pension is a type of employer-provided pension, offering users a guaranteed income for life, based on their final salary and years of service with that employer. 

The pension fund assumes the investment risk, and you receive a specific amount each year once you retire, regardless of how the underlying investments perform.

2. What is a defined benefit transfer?


A defined benefit transfer involves moving your retirement savings from a defined benefit pension scheme, such as a final salary pension, to a defined contribution pension or personal pension. This transfer is often appealing as it can offer more control over your pension funds. This potentially allows you to invest it as you see fit, and may offer the possibility of a tax-free lump sum.

3. What is the Pension Protection Fund (PPF)?

Members of defined benefit pension plans are protected by the Pension Protection Fund (PPF). In the event that your employer files for bankruptcy and the pension plan is unable to pay your promised benefits, the PPF may take over to make up for lost payments. This makes it important to remember that you forfeit this protection if you leave a defined benefit plan, though.

4. What is the cash equivalent transfer value?

If you decide to transfer your final salary pension to another pension scheme, you will receive a payment. These lump sums are cash equivalent transfer values (CETV). The calculation is based on various factors, such as salary, how long you’ve been in the scheme, and your retirement age. However, it’s necessary to understand that this lump sum might be less than the retirement income you would have received if you’d stayed in the final salary pension scheme.

5. Can I get a tax-free lump sum from my pension?

Yes, once you reach the retirement age of 55, you can generally take up to 25% of your pension pot as a tax-free lump sum. This applies to personal pensions and defined contribution schemes. If you transfer your final salary pension to a defined contribution scheme, you could access a tax-free lump sum. However, bear in mind that any income you take from your pension pot after this is subject to income tax.

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