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

A serious health condition can change the pension transfer question, because a shorter life expectancy reduces the value of a lifelong income and can make a lump sum look more attractive. But it can also open up better options that don't involve a transfer at all, such as early payment of a DB pension on ill-health grounds and enhanced annuity rates. In this illustrative example, the likely outcome of regulated advice was to keep the DB pension and use those other routes instead.

Quick summary

• Illustrative example: "Robert", 61, a former civil engineer
• Health: diagnosed with a serious long-term health condition
• DB pension: Local Government Pension Scheme (LGPS), CETV £310,000
• DB income: £13,200 a year from age 65 (unreduced)
• DC pot: a separate DC pension of £45,000
• Goal: make the most of his pensions for himself and his family, and consider early access because of his reduced life expectancy
• Likely outcome of regulated advice: keep the LGPS pension. Ask the scheme about early payment on ill-health grounds, and look at an enhanced annuity for the DC pot.

Imagine Robert. He has just been diagnosed with a serious long-term health condition that is likely to shorten his life. Understandably, he wants to make the most of his pensions, both for himself while he is well enough to enjoy them and for the family he wants to provide for.

Situations like Robert's are more common than many people realise. Health can change the balance of a pension transfer decision, and this illustrative example walks through the points an FCA-authorised adviser with the pension transfer permission would typically weigh, with care and within the FCA's rules.

Robert's Background

Robert worked as a civil engineer for a local authority for 27 years before leaving at 58. His health has deteriorated since he left. Through his job he built up a substantial defined benefit (DB) pension in the Local Government Pension Scheme (LGPS), one of the UK's largest public sector schemes. Unlike some public sector schemes, the LGPS is funded, so a transfer out to a defined contribution (DC) pension is possible.

His pension position at 61:

• LGPS deferred pension: £13,200 a year payable from 65 without reduction, with a Cash Equivalent Transfer Value (CETV) of £310,000
• LGPS early payment: available now on request, but reduced to around £9,800 a year if taken at 61 on normal early retirement terms
• Separate DC pension: £45,000 in a former employer's group personal pension
• State Pension: 38 qualifying years, so he expects the full new State Pension from 67. That is £241.30 a week (about £12,548 a year) in 2026/27. You can check your own forecast on gov.uk.
• Life assurance: a £150,000 whole-of-life policy written in trust for his wife

Robert's wife, "Sandra", 59, works part-time and has a modest DC pension of her own. They have two adult children and two grandchildren.

Key point: Robert's reduced life expectancy, while deeply personal and uncertain, is a relevant factor in pension planning. It affects the value of a guaranteed lifelong income and the appeal of lump sums that can be passed on. A good adviser handles this with sensitivity and still looks carefully at the numbers.

What Robert Wants to Achieve

Robert has four main objectives:

1. Income now: to fund a comfortable life for himself and Sandra while he is still well enough to enjoy it
2. Leave as much as possible to his family: he worries that if he dies before drawing much of his pension, the money will "die with him"
3. Tax-free cash: he knows he can take a tax-free lump sum and wants to understand his options
4. Flexibility: in case his condition gets worse faster than expected

He has read online that transferring a DB pension to a self-invested personal pension (SIPP) would let him pass the whole fund to his family when he dies. He starts out believing a transfer is the obvious answer.

How a Regulated Adviser Would Approach It: Why Health Changes the Equation

The FCA's starting assumption is that a DB transfer is unlikely to be suitable for most people. That doesn't change because someone is unwell, but health is one of the personal factors that an adviser with the pension transfer permission must take into account. Robert's situation would need very careful thought.

The Transfer Analysis

The FCA requires an adviser to carry out an appropriate pension transfer analysis (APTA), which includes a transfer value comparator. Part of the analysis looks at how much investment growth a transferred fund would need to provide benefits like those Robert is giving up.

For Robert, in this example:

• CETV: £310,000
• Income from 65: £13,200 a year, increasing with inflation
• A spouse's pension for Sandra if Robert dies first, assumed here to be about £8,800 a year
• Growth needed to match those benefits: around 5.1% a year after charges, which is possible but only by taking real investment risk

Key point: For a healthy 61-year-old with average life expectancy, needing growth of about 5% a year after charges for 25 to 30 years would usually be a strong reason to keep the DB pension. Robert's shorter life expectancy changes the time horizon, and so changes the maths.

How Reduced Life Expectancy Affects the Analysis

When someone's life expectancy is materially reduced, several things shift.

1. The "break-even" period gets shorter

The longer a DB pension is paid, the more valuable it is compared with a lump sum. If Robert lived to 85, he would receive 20 years of £13,200, or £264,000 before inflation increases, plus Sandra's pension afterwards. If he died at 70, he would have received about £66,000. In that case, a transferred fund passed to his family would have been worth much more.

2. LGPS death benefits are more limited than a SIPP

If Robert died before his pension started, the LGPS would typically pay:

• a lump sum death grant, worked out as a multiple of his deferred pension under the scheme rules
• a pension for Sandra for the rest of her life

A transferred SIPP could instead pass the whole remaining fund to his nominated beneficiaries. But from 6 April 2027, unused pension funds are due to come into the scope of inheritance tax, which weakens that advantage. Our article on the 2027 pension IHT overhaul explains the change.

3. Enhanced annuities may be available

This is often overlooked. With a serious health condition, Robert may qualify for an enhanced annuity (also called an impaired life annuity). These pay more than a standard annuity because the insurer expects to pay for a shorter time. MoneyHelper explains how annuities, including enhanced annuities, work.

Important: If you have a health condition, telling your scheme, adviser and annuity providers about it in full can improve your options, through higher annuity rates or early payment of a DB pension on ill-health grounds.

A Route Robert Hadn't Considered: Ill-Health Early Payment

Before going further with a transfer analysis, an adviser would want to explore a route Robert hasn't thought about: early payment of his LGPS pension on ill-health grounds.

The LGPS has rules for deferred members whose health means they are permanently unable to do the job they used to do. In that case, a deferred member can apply for their pension to be paid early without the usual early retirement reduction. The decision rests with the former employer, based on an independent medical opinion. The rules for active members who leave because of ill health are different and can include enhanced benefits, so it's important to check which rules apply.

For Robert, that could mean his full £13,200 a year starting now rather than at 65, instead of the reduced £9,800 he would get on normal early retirement terms. He would ask his former employer and the LGPS administrator how to apply. Many other DB schemes, both public sector and private, have their own ill-health early retirement rules, so anyone in Robert's position should ask their scheme.

Exploring Enhanced Annuity Options

For the £45,000 DC pot, an adviser would typically obtain annuity quotes from several providers, disclosing Robert's health. The figures below are illustrative only, for the whole pot, and real quotes depend on health, age, rates at the time and the options chosen.

Option	Illustrative annual income	Notes
Standard single-life annuity (no health disclosed)	£2,250 a year	Level income, no spouse's pension
Enhanced single-life annuity (health disclosed)	£3,100 a year	Higher income because of his health
Enhanced joint-life annuity (50% to Sandra)	£2,700 a year	Income continues for Sandra
Keep the DC pot in drawdown	Flexible	Keeps capital for beneficiaries, with investment risk

In this example, the enhanced annuity looks attractive for the DC pot. Given his health, a higher guaranteed income that doesn't depend on investment decisions has real merit.

Why Regulated Advice Would Be Likely to Favour Keeping the LGPS Pension

In an example like this, a regulated adviser would be likely to conclude that Robert should keep his LGPS pension. The main reasons are below.

1. Sandra's Needs

Sandra's spouse's pension is a key factor. If Robert transferred and the fund was run down by withdrawals, Sandra might have little or nothing left from it. The LGPS spouse's pension is paid for the rest of her life, however long Robert lives.

2. The 2027 Pension IHT Changes

One of Robert's main reasons for wanting to transfer is to pass money to his children without inheritance tax. From 6 April 2027, unused pension funds are due to come into the scope of inheritance tax, so a SIPP no longer offers a straightforward way to pass on wealth outside the estate.

Important: The 2027 change significantly reduces the inheritance advantage that was sometimes given as a reason to transfer a DB pension to a SIPP. Robert's plan to transfer to maximise his family's inheritance may work less well than he expects.

3. Investment Risk at a Vulnerable Time

A transferred fund would have to be invested, and investments can fall as well as rise. If Robert's health got worse and he needed to draw heavily while markets were down, the fund could shrink quickly. The LGPS pension gives a certainty that a SIPP cannot.

4. Income and Tax-Free Cash Without Transferring

If Robert's ill-health application succeeds, his pension would be paid now without reduction. He could also exchange some of it for a tax-free lump sum under the LGPS rules. That would give him a lump sum and a lifelong income without taking investment risk.

A Possible Plan

In an example like Robert's, a plan that keeps the DB pension might look like this:

1. Apply for ill-health early payment of his deferred LGPS pension through his former employer
2. If that is not granted, consider taking the LGPS pension early at the reduced rate, so he has income now while he is well enough to enjoy it
3. Take 25% tax-free cash from the DC pension (£11,250) and use the rest to buy an enhanced joint-life annuity for Robert and Sandra
4. Review the life assurance trust so the £150,000 policy works as intended for Sandra and the family
5. Plan for the State Pension at 67, which would add meaningfully to household income if he lives to receive it

Key point: This approach doesn't ignore Robert's wish to provide for his family. It uses other tools to do that, such as life assurance in trust, an annuity with value protection where it suits, and good estate planning, rather than a high-risk transfer that could leave Sandra worse off.

Advice Charges When You Are Seriously Ill

Since 1 October 2020, the FCA has banned contingent charging for DB transfer advice in most cases. That means an adviser cannot charge only if you go ahead with a transfer. There are carve-outs for people in serious ill health and in serious financial hardship, where a contingent charge may be allowed if strict conditions are met. Ask any adviser to explain their charges clearly and in writing before you start.

Five Lessons From Robert's Example

1. Health Can Change Your Options

A serious health condition isn't only a negative in pension planning. It can open up ill-health early payment and enhanced annuity rates, and it is a relevant factor in any transfer analysis. Tell your scheme and any adviser about it.

2. The 2027 IHT Changes Are Fundamental

Many people assume a SIPP is always the best way to pass money to family. From April 2027 that will no longer be straightforward, because unused pension funds are due to count towards the estate for inheritance tax.

3. DB Spouse's Pensions Have Real Value

Robert initially discounted Sandra's spouse's pension because he was focused on lump sums for his children. But a guaranteed income for Sandra, possibly for 20 years or more, has real value. Giving it up by transferring is a significant decision.

4. Ill-Health Early Payment Is Often Overlooked

Many people with a DB pension don't know about their scheme's ill-health rules. They exist for situations like Robert's and can give earlier access without a reduction, with no transfer needed.

5. Enhanced Annuities Are Worth Exploring

If you have a health condition and a DC pension, an enhanced annuity may pay noticeably more than a standard one. Disclose your health and compare quotes from several providers.

Getting Regulated Advice and Help

Robert's example shows why transfer decisions, particularly where health is involved, need regulated advice. The stakes are high, the factors are complex, and the rules exist to protect people from irreversible decisions based on incomplete information.

By law, if your safeguarded benefits (such as a DB pension) are worth more than £30,000, you must take advice from an FCA-authorised adviser with the pension transfer permission before you can transfer. The adviser must take your circumstances, including your health and life expectancy, into account.

Free, impartial guidance is available from MoneyHelper, and if you're 50 or over you can book a Pension Wise appointment about your DC pensions. Be wary of anyone who contacts you out of the blue about your pension, and check the FCA's ScamSmart pages first.

I don't give pension transfer advice. If it would help, you can book a free, no-obligation chat about how DB transfers and the advice process work. It's general information, not advice. If you then want regulated advice, I can introduce you to an FCA-authorised firm that holds the pension transfer permission. Arthur Browns may receive a fee from the firm we introduce you to if you become their client. Introductions are for UK residents with a transfer value of £50,000 or more. Below that, MoneyHelper is a good place to start.

Frequently asked questions

Does a serious health condition change the case for transferring a DB pension?

It can. A shorter life expectancy shortens the period over which a guaranteed DB income will be paid, which changes the transfer analysis and may make a lump sum look more attractive for your family. But a health condition can also open up better alternatives, such as early payment of your DB pension on ill-health grounds or enhanced annuity rates on DC pots. An adviser with the pension transfer permission must weigh all of these for your own circumstances.

What is ill-health early retirement from a DB pension scheme?

Many DB schemes, including the LGPS and the NHS Pension Scheme, have ill-health rules. They can allow members who are permanently unable to work, or to do their own job, to receive their pension early without the usual reduction for early payment. The exact conditions and benefits depend on the scheme and on whether you are still a working member or a deferred member, so ask your scheme for its rules.

What is an enhanced annuity and who qualifies for one?

An enhanced annuity (also called an impaired life annuity) pays a higher income than a standard annuity because the insurer expects to pay it for a shorter time because of your health or lifestyle. Conditions that may qualify include heart disease, diabetes, stroke, some cancers and serious lung conditions, among many others, but each insurer has its own criteria. Always disclose your health when you get annuity quotes.

How do the 2027 pension IHT changes affect DB transfer decisions for people with health conditions?

From 6 April 2027, unused pension funds and most pension death benefits are due to come into the scope of inheritance tax. A SIPP was sometimes seen as a way to pass money on outside the estate, which was given as a reason to transfer a DB pension. That advantage is much smaller under the new rules, and any regulated advice would need to take the final legislation into account.

Do I need regulated advice to transfer my DB pension if I have a health condition?

Yes. If your safeguarded benefits are worth more than £30,000, you must take advice from an FCA-authorised adviser with the pension transfer permission before transferring. A health condition doesn't remove that requirement. If anything, it makes good advice more important, because the analysis must take account of your life expectancy and the alternatives open to you.

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This is an illustrative example. Robert and Sandra are hypothetical, and all figures are examples only, based on assumptions that may not apply to you. Nothing in this article is advice or a recommendation to transfer or keep any pension. Please read our important information.