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Final Salary Pensions: What you need to know.

Due to the pension changes, introduced in April 2015, there has been an increased interest in final salary pensions transfers (or defined benefit transfers). It is now possible for many people to transfer out of a final salary pensions scheme into a defined contribution scheme, to take advantage of the new pension rules which allow full access to a pension fund.

The advantages of transferring out include:

  • Complete access to the transferred value of the fund
  • Potential for greater tax-free cash
  • Opportunity to pass on as inheritance
  • Option to choose how benefits are taken
  • Opportunity to buy an annuity with the proceeds
  • Benefits can be taken from any age after 55
  • Transfer values can be high due to low gilt yields

So, what are the dangers of final salary pensions transfers? A final salary pensions scheme mitigates many of the risks of retirement for you and puts those risks with the scheme, the former employer and also the Pension Protection Fund. If you decide to transfer out of a final salary scheme, then the risks become yours!

Other disadvantages of transferring out include:

  • Lose guarantees attached to the scheme
  • Lose any benefits under the Pension Protection Fund
  • Final salary scheme provide inflation protection and inflation proofing

It is possible to transfer out of most final salary pensions schemes, although it is not possible to transfer out of a final salary scheme if it is being paid. It is also not possible to transfer out unfunded government schemes. However, local authority pensions can be transferred. Pensions of the following can not transfer out:

  • NHS
  • Teachers
  • Police
  • Armed Forces
  • Civil Forces

The starting point for any transfer out of a final salary pensions scheme is that it should not be transferred unless there are some very sound reasons to do so.

So what should you bare in mind if you are considering transferring out of a final salary scheme:

  • Be sure you understand what you are giving up including your guaranteed income
  • Be aware of scam schemes
  • Ensure you understand the risks you are taking on with a new scheme
  • Consider all your options

And finally, take transfer advice from an appropriately qualified firm of Financial Advisers that specialise in cash flow modelling software.  We believe this to be an essential part of the transfer advice.

The transfer value calculation

The transfer value from a final salary scheme is technically called a Cash Equivalent Transfer Value (CETV). It has no relationship to the values quoted for the Lifetime Allowance, an amount quoted in retirement quotes.

The CETV is a value that is supposed to represent the value of the benefits given up.


In our view, everyone should ask for a CETV from a pension scheme to see what the value is, and you’re entitled to a free one every year. We advise everyone who is looking to take benefits from a final salary scheme to get the CETV and assess what the scheme can offer, and what can be arranged with the transfer.

If you would like to discuss your pension in more detail, please contact us on 01484 448 019 or email: