Specialist FCA Regulated Advice

Final Salary Pension Transfer

If you are 55+ and have a final salary pension you are not currently paying into or receiving, you can probably transfer it into a new flexible arrangement; and if you need to, release up to 100% as a cash lump sum, the first 25% is usually tax free.

The question is, should you? The starting point, is that transferring a final salary pension is not a good idea so read on to find out more.

Final Salary Pension Transfer Advice
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Flexible Retirement Options

You can take money out of your pension from age 55. You don’t have to access it all in one go, you now have more choice and flexibility in how you take it and when.

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Investment Freedom

You take control of your money and invest it how you want, including how much risk you want to take and whether the option of ethical/green investments interest you.


Release cash now

Release 100% as cash a lump sum. The first 25% can be released tax free, the rest is taxed at your marginal tax rate at the time you take it, which could change in the future.

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Improved Death Benefits

You can ensure that any money invested in your pension will pass onto whomever you like, whether that is your spouse, partner, children or grandchildren or even a friend or charity.

Final Salary Pension Transfer Explained

Final Salary Pension Transfer Explained

Many people in final salary pension schemes (also known as a defined benefit pension) are taking advantage of Pension Freedoms that allow them to access their pension at aged 55+.

Final salary pension schemes are known as the gold standard of pensions and offer lots of benefits to their members, which should not be given up lightly.

Transferring or cashing in your final salary pension is only advisable for a few people. Most people would be better off staying in the pension scheme.

This guide has been produced to help you understand your options.

Can I cash in my final salary pension early?

If you are aged 55 or older and not currently paying into or receiving your final salary pension, you can transfer most arrangements into a new plan that will give you immediate access.

You can release up to 100% of your fund, 25% is tax-free and the balance is taxed at your marginal rate at the time and could change in the future.

You can transfer out of your final salary pension scheme if:

  • You are aged 55 or over.
  • You are seriously ill you can access your pension earlier than 55.
  • You are not currently paying into or receiving your final salary pension.
  • Your pension is with your current or ex employer.

Please note you can continue to work after transferring your pension.

What is a final salary pension?

A final salary pension is also known as a defined benefit pension. A final salary pension offers a guaranteed prearranged pension income based on your final salary. Unlike a defined contribution pension where your pension income can go up and down depending how well the pension scheme investments perform.

Final Salary Pension funds are invested just like any other pension fund. However the company providing the pension will take all the investment risk. If the funds go down in value, you will still be guaranteed your prearranged pension income. If the value of the pension fund goes down there will be a “pension shortfall” or “pension deficit” where there is not enough money to cover the pension schemes obligations. Any deficit will have to be made up by the company. This is why final salary pensions are often known to be the best type of pension you can have.

Many companies no longer offer final salary pensions due to all the risk being borne on them. People are also living a lot longer which puts increased pressure on the amount of money needed in pension funds.

Public Sector Final Salary Pension schemes

Public sector final salary pensions schemes are offered by the government for public sector workers. These pension schemes come in two forms:

  • Unfunded Pensions: These pensions do not have a pension fund. The pensions are paid out of taxes raised by the government. Teachers, NHS staff, armed forces, civil servants, police and the fire service are all unfunded pensions and cannot be transferred.
  • Funded Pensions: These pensions do have a pension fund such as the Local Government Pension Scheme (LGPS) and can be transferred.

Private Sector Final Salary Pension Schemes

Private sector final salary pension schemes are operated by companies in the private sector and differ in size and the amount of members. They can be run by larger PLC’s or small Ltd companies. These schemes will often be run by their own trustees and administrators.

Many of the older and larger private sector final salary pension schemes are running with a pension deficit. In some cases, the pension scheme members are being offered enhanced transfer values so the company can close down the loss making scheme.

There is also a risk if a company goes into bankruptcy leaving a huge deficit in the pension fund. The government set up the Pension Protection Fund in 2005 to protect members of final salary pension schemes when companies go bust.

The Pension Protection Fund will take over the pension fund guaranteeing 100% of your pension if you are already retired or 90% if you haven’t retired. The scheme now has over 249,000 members and manages over £32bn of pension fund assets.

How are final salary pensions calculated?

There are two ways that final salary pensions are calculated:

  • Final salary schemes; calculated on your salary when you finally retire.
  • Career average schemes; calculated on your average salary across your career.

A final salary pension is calculated on your salary (either your final salary or your average career salary), the number of years you have been paying into the scheme and the schemes “accrual rate”.  The “accrual rate” is a fraction of your salary, usually 1/60 or 1/80.

Final salary pension calculation formula = Years paid into scheme x 1/60 x Final Salary.

What are the risk & benefits of transferring or cashing a final salary pension early?

If you are considering transferring your final salary pension to a private pension, known as a defined contribution scheme, you need to consider the pro’s and con’s carefully before you make your decision. Here we take a look at the pro’s and con’s.

Risks of transferring a final salary pension:

  • A guaranteed pension income for life is the gold standard for pensions and should not be given up lightly.
  • You will be giving up a pension that is guaranteed to increase each year.
  • You will be giving up a pension where you have no investment risk, it is all borne by the scheme.
  • Taking out a cash lump sum early will mean you will have less money in your pension for the future.
  • Transferring your pension will require advice, which you will have to pay for.
  • You must have a clear understanding of the risks of swapping safeguarded benefits for flexible ones.
  • The value of your pension pot may go down due to poor performing investments.

Benefits of transferring a final salary pension:

  • You can access your pension fund from the age of 55.
  • You can take 100% as a cash lump sum – the first 25% tax free.
  • Improved death benefits. You can leave your entire pension pot to your loved one, free of inheritance tax.
  • You can draw down on your pension pot as and when you like, similar to a bank account.
  • Freedom to invest your pension fund where you want.
  • If your pension fund investments perform well you will end up with more money.
  • Your pension is not at risk if your employer goes into bankruptcy.

What is a final salary pension "Cash Equivalent Transfer Value" (CETV)?

When you transfer out of a final salary pension, the scheme’s trustee will give you a “cash equivalent transfer value’ also known as a CETV. The cash equivalent transfer value is the amount of cash your pension would need today to cover the benefits and pension payments you have been guaranteed to receive in the future.

Normally a cash equivalent transfer value is calculated at 20 times the annual pension income you have been guaranteed at retirement.  For example if you have been guaranteed a pension income of £15,000 per year, your CETV will be 20 x £15,000 = £300,000 CETV.

Some final salary pension schemes are offering their members enhanced CETV’s, which can be up to 40/60 times your annual pension income.  This is due to final salary pension schemes trying to reduce the pension schemes liabilities, with many wanting to close the scheme completely.

It is normal that final salary pension schemes are invested into low risk government gilts (loans to the government), which are repaid by the government with interest. Gilts are deemed as extremely good low risk investments. However the interest rate are currently extremely low, so the pension funds growth are much lower than expected. This has left many pension schemes needing more cash in their pension fund to cover their members pensions, which mean you will receive a larger CETV

What types of final salary pensions you can access early?

Final Salary Pensions

Also known as defined benefit pensions, local government pension schemes (LGPS) and employer funded schemes; these are usually only provided by larger employers such as PLC companies or the government. You receive a percentage of your salary for each year you work for that employer.

They are considered the gold standard of pension schemes, and for most people they are best suited to leaving these alone and taking them at their selected retirement age. However, for some transferring to a flexible pension arrangement is more suitable.

Here are just a few examples of schemes we have dealt with:

National Grid UK Scheme

Sainsbury’s Pension Scheme

Railways Pension Scheme

Lloyds TSB Staff Pension Scheme

Local Government Pension Schemes (LGPS)

Allied Domecq Pension Fund

More information can be found on our Defined Benefit Pension Schemes guide.

If your pension fund value is over £30,000, government regulations require you to get regulated advice from a pension transfer specialist such as ourselves.

What types of Pension you can not access early?

Un-funded Statutory Pension Schemes

These are pensions that don’t have any funds, they are paid for by the taxpayer as you take your pension. They include Teachers, Firefighters, NHS workers, Police and Armed Force.

State Old Age Pension

Pension Transfer Consultation

Get Started Today

Free Pension Transfer Guide & Consultation
If you would like to find out if transferring your pension or taking a cash lump sum is suitable for you, we can provide a free initial Pension Transfer Consultation known as abridged advice.

Simply complete your details below, and we will send you our Pension Transfer Consultation Pack and Enquiry Form.

As part of the consultation we will look at:

  • What existing pension plans you have in place.
  • What your plans are for retirement.
  • Your needs for flexibility and control.
  • The likely cost of more in-depth advice.

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Final Salary Pension Transfers Advice

There are strict FCA regulations we, as your adviser, need to adhere to before we advice you to transfer out of a final salary pension scheme. This is because, in the most cases you will be better off stay in the scheme.


This service only applies to pensions in the UK. Taking benefits early will almost certainly reduce your pension income in retirement and is only suitable for a limited number of people and circumstances. This should not be seen as an easy option for raising cash.

If you release all your money from your pension early you will not have anything left to provide you with income in retirement. Usually 25% of your pension can be released tax-free, the balance is taxed at your marginal rate at the time of release, this marginal tax rate could change in the future.

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