Case Study: DB Pension Transfer With a Serious Health Condition — What You Need to Know (2026)

When Robert contacted our team, he was facing one of the most difficult conversations anyone can have about their finances. Diagnosed with a serious long-term health condition that was likely to shorten his life expectancy, he was understandably focused on making the most of his pension — both for himself and for the family he wanted to provide for.

Robert’s situation is one we encounter more often than many people realise. Health conditions can fundamentally change the calculus around pension transfer decisions, and this case study explores how a qualified Pension Transfer Specialist approached Robert’s circumstances with care, rigour, and FCA compliance.

Robert’s Background

Robert, 61, had worked as a civil engineer for a local authority for 27 years before taking early retirement at 58 due to his health. He had accumulated a substantial defined benefit (DB) pension through the Local Government Pension Scheme (LGPS), one of the UK’s largest public sector pension schemes.

His pension position at the point of our initial consultation:

• LGPS deferred pension: £13,200/yr payable from age 65 (unreduced), with a Cash Equivalent Transfer Value (CETV) of £310,000
• LGPS early pension: Available immediately — but reduced to approximately £9,800/yr if taken now at 61
• Separate DC pension: £45,000 in a former employer’s group personal pension
• State Pension: 38 qualifying years — full new State Pension of £11,502/yr from age 67
• Life assurance: £150,000 whole of life policy in trust for his wife

Robert’s wife, “Sandra”, 59, worked part-time and had a modest DC pension of her own. They had two adult children and two grandchildren.

What Robert Wanted to Achieve

Robert had four primary objectives:

1. Income now — he wanted to fund a comfortable lifestyle for himself and Sandra while he was still well enough to enjoy it
2. Maximise what passes to his family — he was concerned that if he died before drawing much pension, the money would “die with him”
3. Access his tax-free cash — Robert knew he was entitled to a tax-free lump sum and wanted to understand his options
4. Flexibility — in case his condition deteriorated faster than expected

He had read online that transferring a DB pension to a Self-Invested Personal Pension (SIPP) would allow him to pass the entire fund to his family on death. He came to us believing a transfer was the obvious answer.

The Adviser’s Analysis: Why Health Changes the Equation

A Pension Transfer Specialist’s starting point, as required by the FCA under COBS 19, is a presumption that a DB transfer is unlikely to be in the client’s best interests. However, health is one of the factors that can shift this analysis — and Robert’s situation warranted very careful consideration.

Transfer Value Analysis (TVA)

The critical calculation in any DB transfer decision is the Required Rate of Return (RRR) — the investment return that a transferred SIPP fund would need to achieve, on average, to replicate the income the DB pension would have provided.

For Robert:

• CETV: £310,000
• Target income from age 65: £13,200/yr (index-linked)
• Plus: LGPS spouse’s pension of approximately £8,800/yr for Sandra on Robert’s death
• RRR: approximately 5.1% — achievable but not without meaningful investment risk

How Reduced Life Expectancy Affects the Analysis

When a client’s life expectancy is materially reduced, several things change in the pension transfer analysis:

1. The “break-even” period shortens

The longer a guaranteed DB income is paid, the more valuable it is versus a lump sum. If Robert lived to 85, he would receive 20 years of £13,200 = £264,000 in income (before considering inflation), well short of the £310,000 CETV. But if he died at 70, he would have received only £66,000 in income. The CETV — passed as a lump sum to his beneficiaries — would be worth far more in that scenario.

2. LGPS death benefits are limited

Under the LGPS, if Robert died before drawing his pension, his beneficiaries would receive:

• A death grant of three times his annual pension (3 × £13,200 = £39,600)
• A spouse’s pension of two-thirds of his deferred pension (£8,800/yr) for Sandra

By contrast, if he had transferred to a SIPP and died before drawing it, the full SIPP fund could be passed to nominated beneficiaries — potentially free of inheritance tax under current rules (subject to the 2027 pension IHT changes).

3. Enhanced annuity options may be available

This is a factor many clients overlook. If Robert has a serious health condition, he may qualify for an enhanced annuity (also called an impaired life annuity). These products pay a higher income than standard annuities — sometimes significantly so — because the insurer anticipates a shorter payment period.

What the Adviser Discovered: LGPS Ill-Health Retirement

Before proceeding with a transfer analysis, Robert’s adviser explored a route that Robert hadn’t considered: ill-health early retirement from the LGPS.

The LGPS has specific provisions for members whose health prevents them from working. Under Tier 1 ill-health criteria (permanently unable to fulfil any gainful employment), the scheme can:

• Pay the pension immediately, without any early retirement reduction
• In some cases, enhance the pension by adding notional additional service (up to the full service Robert would have accrued to age 65)

Robert had already left employment, but his scheme rules were checked. Because he left on grounds of ill-health at age 58, he had already been assessed for Tier 2 benefits (permanently unable to carry out his specific job). He was receiving a small ill-health enhancement, but had not been assessed for Tier 1.

The adviser recommended Robert request a Tier 1 reassessment from his former LGPS employer — potentially unlocking a higher income immediately, without any transfer required.

Exploring Enhanced Annuity Options

The adviser also obtained enhanced annuity quotations for Robert’s DC pension pot (£45,000), disclosing his health condition to insurers. The results were striking:

For Robert’s DC pot of £45,000, the enhanced annuity option was compelling. Given his health circumstances, taking the higher guaranteed income — and freeing him from investment decisions — had real merit.

The Transfer Decision: Why the Adviser Did Not Recommend Transferring the LGPS Pension

After thorough analysis, the adviser did not recommend transferring Robert’s LGPS DB pension. The key reasons:

1. Sandra’s Needs

Robert’s spouse’s pension of £8,800/yr for Sandra was a critical factor. If Robert transferred and the SIPP fund was depleted by drawdown, Sandra would have no ongoing income from this source. The LGPS spouse’s pension, by contrast, is guaranteed for Sandra’s lifetime — regardless of how long Robert lives.

2. 2027 Pension IHT Changes

One of Robert’s main reasons for wanting to transfer was to pass the fund to his children free of inheritance tax. However, from April 2027, unused pension pots will be included in the deceased’s estate for IHT purposes. This significantly reduces the IHT advantage of a SIPP — it no longer offers a straightforward route to pass wealth free of 40% IHT.

3. Investment Risk at a Vulnerable Time

A transferred SIPP fund would need to be invested — and markets can fall as well as rise. If Robert’s health deteriorated rapidly, and he needed to draw down heavily on his SIPP while markets were depressed, the fund could be materially reduced. The LGPS guarantee provides certainty that a SIPP cannot replicate.

4. Ill-Health Pension + Tax-Free Cash Available Without Transferring

If Robert was reassessed under Tier 1 ill-health criteria and granted immediate enhanced pension payment, he could also take his LGPS tax-free cash (approximately £39,600 based on current rules) without needing to transfer. This would give him a lump sum and an ongoing income — without investment risk.

The Agreed Strategy

After discussion, Robert and his adviser agreed the following plan:

1. Request Tier 1 ill-health reassessment from his former LGPS employer — potentially increasing his annual pension and allowing immediate payment
2. Take LGPS early pension immediately at £9,800/yr if Tier 1 is not granted — providing income now while he is well enough to enjoy it
3. Take 25% tax-free cash from the DC pension (£11,250 tax-free) and use the remainder to purchase an enhanced joint-life annuity for Robert and Sandra
4. Review life assurance trust to ensure the £150,000 whole of life policy is structured efficiently for Sandra’s benefit
5. State Pension planning — Robert’s State Pension at 67 (£11,502/yr) would add meaningfully to household income if he lives to receive it

Five Lessons From Robert’s Case

1. Health Can Improve — or Change — Your Options

A serious health condition is not just a negative in pension planning. It can unlock ill-health early retirement, enhanced annuity rates, and a more nuanced FCA transfer assessment. Always disclose your health condition to your adviser.

2. The 2027 IHT Changes Are Fundamental

Many people assume transferring to a SIPP is always the best way to pass wealth to family. From April 2027, this will no longer be straightforwardly true. The IHT advantage of pension pots is being removed. Get proper estate planning advice before 2027.

3. DB Spouse’s Pensions Have Real Value

Robert initially discounted the £8,800/yr spouse’s pension because he was focused on lump sums for his children. But this guaranteed income for Sandra — potentially for 20–30 years — has enormous real-world value. Surrendering it by transferring out is a significant decision.

4. Ill-Health Retirement Is Often Overlooked

Very few clients arriving at our door having considered the ill-health provisions of their DB scheme. These provisions exist precisely for situations like Robert’s — and can deliver immediate, unreduced pension access without any transfer being required.

5. Enhanced Annuities Are Worth Exploring

If you have a health condition and are considering what to do with a DC pension pot, enhanced annuities can deliver meaningfully higher income than standard rates. Always disclose your health to an annuity broker and obtain quotes from multiple insurers.

Seeking Professional Advice

Robert’s situation illustrates why pension transfer decisions — particularly those involving serious health considerations — require regulated, specialist advice. The stakes are high, the variables are complex, and the regulatory requirements exist to protect people like Robert from making irreversible decisions based on incomplete information.

Under FCA rules, anyone with a defined benefit pension valued at £30,000 or more must take regulated financial advice before transferring. For clients with health conditions, the adviser must also consider the client’s specific circumstances — including life expectancy — as part of the Transfer Value Analysis.

If you have a DB pension and a health condition, please speak to a qualified Pension Transfer Specialist before making any decisions. The right answer is rarely obvious — and the wrong answer can have lasting consequences for you and your family.