Case Study: Former Aerospace Engineer’s £265,000 DB Pension — Should Andrew Transfer? (2026 Guide)

Background: A Redundancy Prompts a Big Pension Question

Andrew, 57, spent 24 years as a systems engineer at a major UK aerospace and defence manufacturer before taking voluntary redundancy in early 2024. With a significant deferred final salary pension, a Self-Invested Personal Pension (SIPP) worth £72,000, and £35,000 in cash savings, he came to us with the question many people in his position ask: should he take the £265,000 Cash Equivalent Transfer Value (CETV) his former employer’s scheme was offering?

Andrew was drawn to the idea of having direct control over a large investment pot, and he was keen to leave something to his two adult children. He had also read about flexibility in drawdown and wondered whether a SIPP might suit his retirement plans better than a defined benefit (DB) scheme. These are understandable instincts — but a thorough analysis told a very different story.

Andrew’s Full Financial Position

After 24 years of service, Andrew’s deferred DB pension is entitled to pay him £12,500 per year from the scheme’s normal retirement age of 65. The scheme also provides:

• A dependant’s (spouse’s) pension of 50% — £6,250/yr for his wife, Catherine, payable on his death
• Annual increases in payment linked to CPI inflation, capped at 5% per year
• A tax-free commutation option at a factor of 14:1 (exchanging income for a one-off lump sum)

Alongside his DB entitlement, Andrew holds a SIPP worth £72,000 invested in a balanced global fund, £35,000 in an easy-access savings account, and a State Pension forecast of £11,973 per year from age 67 (2025/26 rate).

What the Retirement Risk Rating Reveals

A central part of our analysis was calculating Andrew’s Retirement Risk Rating (RRR) — the annual investment return his SIPP would need to achieve, consistently and net of charges, in order to replicate the income his DB scheme would otherwise provide over his expected lifetime.

Andrew’s RRR came out at 6.6% per year. That is theoretically achievable in a well-managed global equity portfolio over the long term, but it is far from guaranteed — and crucially, it must be achieved year after year, even during market downturns, and even in the early years of retirement when sequence-of-returns risk is at its highest.

A single poor market year in the first two to three years of drawing on a SIPP can permanently damage its ability to sustain long-term income. Andrew’s DB pension carries no such risk. It is backed by scheme trustees, the employer’s residual covenant, and — as a statutory backstop — the Pension Protection Fund (PPF), which would pay at least 90% of his benefits if the company were to become insolvent.

The 2027 Inheritance Tax Change and the Inheritance Argument

One of Andrew’s motivations was to leave his pension pot to his children. This is a common reason people consider transferring out of a DB scheme. However, from April 2027, the Government has confirmed that unspent pension funds will be brought into scope for Inheritance Tax as part of a deceased’s estate. This change substantially weakens the inheritance case for holding wealth in a SIPP instead of a DB scheme.

Moreover, Andrew’s DB scheme already provides a meaningful death benefit through Catherine’s 50% spouse’s pension — guaranteed for the rest of her life. This protects the person most likely to depend on Andrew’s pension income.

Income Planning: Bridging the Gap to 65

Rather than transferring, we structured a phased income plan for Andrew using his existing assets:

• Ages 57–65: Drawdown from his SIPP (£72,000) and savings (£35,000), targeting approximately £12,000–£13,000/yr. By keeping withdrawals within his Personal Allowance, Andrew pays little or no income tax.
• Age 65: His DB pension begins — £12,500/yr, CPI-linked, for life. SIPP withdrawals reduce significantly.
• Age 67: Full New State Pension begins at £11,973/yr. Combined guaranteed income rises to approximately £24,473/yr — a solid base for a comfortable retirement.

Any SIPP balance remaining at 65 can be drawn flexibly to fund holidays, home improvements, or gifting — without Andrew being dependent on it for basic living costs.

Seeking Professional Advice

Andrew’s case shows why regulated, independent advice is so valuable. The £265,000 CETV might look attractive in isolation, but the full analysis — covering RRR, guaranteed income, spouse’s protection, PPF security, the 2027 IHT changes, and income sequencing — paints a clear picture: Andrew is far better served retaining his DB pension.

This case study is a hypothetical illustration for educational purposes only. It does not constitute financial advice. All figures are based on 2025/26 rates unless otherwise stated. You should seek regulated advice from a qualified Pension Transfer Specialist before making any decisions about your DB pension.