This page outlines step-by-step what you should expect when taking advice in connection with transferring out of a defined benefit (DB) scheme, and into a defined contribution (DC) scheme.
Before considering a pension transfer, make sure you understand what you would be giving up: read the risks of defined benefit transfers
Step 1: guidance
MoneyHelper is an independent organisation that gives free and impartial guidance to consumers to help them make the most of their money and pensions. It provides independent telephone and webchat services for consumers considering a pension transfer. Call 0800 011 3797 or visit the MoneyHelper website for more information.
Step 2: finding an adviser
After taking guidance, if you are still interested in transferring, you should find an adviser. If you are offered a transfer value of more than £30,000, the law requires you to take advice on giving up your DB pension. Your adviser must confirm to the trustees of your DB scheme that you have taken full advice before they can transfer your DB pension to a DC scheme.
You must use a firm that is authorised by the FCA and can offer DB transfer advice. Firms who can offer this advice are on the FS Register as ‘advising on pension transfers and opt-outs’.
You will probably want your adviser to recommend where the money should be invested, if they recommend a transfer. Some firms are independent so can offer the full range of available financial products and providers. Others are restricted so can only focus on a limited selection of products or providers.
An advice firm must tell you how much they charge for advice. From 1 October 2020, in most cases, you will need to pay the same amount for full advice, whether or not you go ahead with a transfer. In some circumstances, if you have limited life expectancy or you are in serious financial difficulty, a firm may charge you only if a transfer proceeds.
Alternatively, advisers can offer you a short form of advice - ‘abridged advice’ - to confirm that you are not suited to a transfer. But you need to know that:
- if they can’t confirm that a transfer is unsuitable for you then they can only give you a statement explaining that they cannot make a recommendation unless you take full advice
- if you have only taken abridged advice then an adviser cannot give you a confirmation that you have taken transfer advice
- if after getting abridged advice, you want to transfer your DB pension to a DC scheme, you still need to take full advice to get a confirmation to say you have taken the advice
Step 3: getting a transfer value
Before you can start the advice process, you need to get a ‘transfer value’ from your scheme. The transfer value is the amount you will get if you transfer.
The scheme may also give you the monetary value of your retirement pension. But this may not have been updated for inflation or other increases since the date you left the scheme. Don’t use this amount to decide on a transfer before you take advice.
Your transfer value is only guaranteed for 3 months. It may go up or down if it is recalculated. You may have to pay for another transfer value if you ask for one again within 12 months. We think you should make a shortlist of advisers before you get the transfer value.
Your employer may offer you an incentive to leave the scheme, such as increasing your transfer value. They should present this offer clearly and fairly, for example, the reason for the offer. They should offer you access to paid financial advice so you can understand the implications of the offer. They should also allow you sufficient time for you to make up your mind so you can make a decision that is right for you.
What does good advice look like?
Giving up a DB pension is one of the biggest financial decisions you could make. Advisers must fully consider your family and financial circumstances when they give advice. Your adviser should find out about your:
- current financial circumstances and aims
- priorities and spending plans in retirement
- other pensions, assets and debts
- health and your family’s health, if relevant
You should be prepared to provide this information or they won’t be able to advise you, especially if you currently only have vague ideas about retirement because it’s still some years away.
You should make sure you can provide details of any other workplace schemes you belong to in case a transfer could be made to that scheme. In a typical DC workplace scheme, you pay less on charges so more money stays in your pension pot. They already have an investment fund intended to suit all the members of the scheme, which reduces the need to take further advice.
Your adviser will want to understand how you feel about having a secure income and taking on risk that your pension pot may fall in value. You should be able to explain why you want to give up a guaranteed income and how much you are prepared to change your lifestyle in retirement, if your pension pot was lower than you expected.
You should expect your adviser to use the information you have provided and analyse the options available to you. You cannot order your adviser to say you are suited to a transfer – they must use their professional judgement.
At the end of the process, you should receive a written report that:
- states clearly whether you should stay in your DB scheme or transfer to a new scheme
- gives the reasons why this is the best outcome for you, given your retirement plans and income needs
- helps you understand the risks and benefits of staying in the DB scheme or transferring
Your adviser should also check you understand the advice.