Pension transfer

Find out what you need to consider if you are thinking about transferring your defined benefit pension, or if you are moving or combining your defined contribution pension.

Transferring your defined benefit pension

A pension transfer from a defined benefit (salary-related) pension scheme means giving up your benefits in the scheme in return for a cash value, which could then be invested in another pension scheme.

The complexity of DB pension transfer advice means that the decision whether to transfer a DB pension is, even with the assistance of a financial adviser, one of the most complex financial decisions you will ever make.

Defined Benefit pensions are valuable benefits so most people are best advised to keep them.

In most cases you are likely to be worse off if you transfer out of a defined benefit scheme, even if your employer gives you an incentive to leave. The cash value may be less than the value of the defined benefit payments to you and your eventual pension payments will depend on the performance of the new scheme, with the risk that the scheme does not deliver the returns that you expect.

However, for some DB scheme members, transferring may be the correct thing to do and consumers should not assume they have received poor advice.

For example, there are risks to staying too – the employer could go bust and not be able to pay the pension promised. While the Pension Protection Fund may provide you with compensation in these circumstances, the benefits are likely to be less than you would have otherwise received.

If the value of your pension assets in a defined benefit scheme is more than £30,000, Government rules require your pension provider to ensure that you have taken regulated financial advice before allowing the transfer to proceed.

If you have any concerns, you should contact the firm who provided the advice in the first instance. We have published steps to take if you wish to make a complaint against a firm.

You can also find out more from The Money Advice Service or The Pensions Advisory Service.

Transferring your defined contribution pension

With a defined contribution pension you build up a fund that you can access after the age of 55 and use however you want, subject to what your scheme permits. A defined contribution pension may be either in an occupational pension scheme or a personal pension scheme.

Switching your benefits from one defined contribution scheme to another may be beneficial, but it depends on your individual circumstances – so you should first get impartial advice from a firm authorised to give advice on pensions. Our rules require firms advising on pension transfers to have specific permission for advising on pension transfers and opt-outs. Advice on pension transfers must be given, or checked by, a pension transfer specialist. A pension transfer specialist must follow our training and competence rules, and have the appropriate qualifications and, with that, the permission to perform the function. 

Potential benefits of pension switching

  • combining a number of pension funds together in one place
  • moving to a scheme that permits more flexible access
  • a reduction in fees
  • switching to a scheme that better suits your needs
  • stopping ‘trail commission’, which is an annual payment to the financial adviser who set up your pension and which could eat into your pension savings (switching provider should now cut the trail commission link)

Potential risks of pension switching

  • If the new scheme has higher costs but does not offer more benefits than your existing scheme, the transfer may not be in your interest
  • You might lose valuable benefits offered by your current pension such as death benefits or a guaranteed annuity rate (GAR) option
  • Some pensions apply a penalty when you transfer out, which can eat into any cost savings
  • It might also be possible, and more cost-effective, to transfer all your pensions into one of your existing pensions rather than a new one
  • If you change your mind about transferring, it is worth noting that although pension transfers usually offer a 30-day cancellation period, this does not mean your old pension scheme has to take your money back – it may refuse
  • Some pension providers offer bonuses or reduced charges if you stay with them a long time. If you leave, you will miss out on these bonuses.