Case Study: Manufacturing Company DB Pension Transfer — Should Robert Take His £248,000 CETV?

A large transfer value can be tempting, but it doesn't make a transfer suitable on its own. In this illustrative example, a former production manager is offered a £248,000 CETV for a £12,400-a-year DB pension. Because the fund would need strong investment growth just to match the pension, his wife relies on the spouse's pension, and his other savings can bridge the gap to 65, the likely outcome of regulated advice is to keep the DB pension.

Case study at a glance

• Illustrative example: "Robert", 58, a former production manager
• Sector: a large UK consumer goods manufacturer (private sector DB scheme)
• Deferred DB pension: £12,400 a year from 65, with a 50% spouse's pension
• Cash Equivalent Transfer Value (CETV): £248,000
• Growth needed to match the DB pension: about 6.6% a year after charges
• Likely outcome of regulated advice: keep the deferred DB pension

Background

Imagine Robert. He spent 28 years as a production manager at a large UK consumer goods manufacturer before taking voluntary redundancy at 53. During that time he built up a significant pension in the company's defined benefit (DB) scheme, the kind of final salary arrangement that has become rare in the private sector.

Now 58, Robert hopes to retire early. He has a DC workplace pension from his current part-time job worth £95,000, an ISA of £38,000, and his deferred DB pension, untouched since he left five years ago. His wife, "Anne", 56, works part-time and has a small personal pension.

When Robert's latest statement shows a Cash Equivalent Transfer Value (CETV) of £248,000, he starts to wonder whether transferring would make sense. Could he get at the money earlier and invest it for more flexibility?

The DB Pension in Detail

Robert's deferred DB pension will pay £12,400 a year from 65. In this example it increases each year in retirement in line with CPI, capped at 5%. The scheme also pays a 50% spouse's pension to Anne if Robert dies first, a valuable benefit that people often underestimate.

Key point: Robert's scheme is a private sector DB scheme, not an unfunded public sector scheme, so a transfer to a DC pension is possible. Because his safeguarded benefits are worth more than £30,000, the law requires him to take advice from an FCA-authorised adviser with the pension transfer permission before he could transfer.

How a Regulated Adviser Would Analyse It

An adviser with the pension transfer permission must start from the FCA's assumption that a transfer is unlikely to be suitable. They must carry out an appropriate pension transfer analysis (APTA), including a transfer value comparator, which shows the CETV alongside an estimate of what it would cost to buy similar benefits on the open market.

One useful way to understand the numbers is to ask how much investment growth a transferred fund would need to provide the same income as the DB scheme. In Robert's example, the answer is about 6.6% a year, after all charges, every year. That is simply to match what the DB scheme already promises.

Important: Needing 6.6% a year after charges is a high hurdle. Achieving it consistently, especially in the early years of retirement when a fall in markets does the most damage, is far from certain. The DB pension needs no investment decisions and can't run out.

Robert's Retirement Goals

Robert would like to retire fully at 62, with an income of around £28,000 a year. He and Anne enjoy modest travel, have no mortgage and live fairly simply. He expects the full new State Pension from 67, which is £241.30 a week (about £12,548 a year) in 2026/27. You can check your own forecast on gov.uk.

The main challenge is the gap between 62 and 65, before his DB pension starts, and then until 67, when his State Pension starts.

A Possible Plan: Keep the DB Pension and Bridge the Gap

Rather than transferring, a plan built around keeping the DB pension might look like this:

• Ages 62 to 65: draw from the DC workplace pension (£95,000) and the ISA (£38,000) to cover living costs. With careful planning, Robert could draw around £22,000 to £24,000 a year from these during the gap, managing his income tax by using his personal allowance and his tax-free cash.
• Age 65: the DB pension starts at £12,400 a year. Robert could look at the scheme's commutation option, which lets him give up some pension in exchange for a tax-free lump sum. In this example the scheme pays £14 for every £1 of yearly pension given up, so giving up £3,000 a year would produce about £42,000 tax-free. That could rebuild his ISA or pay for one-off costs, though it permanently reduces his income and Anne's spouse's pension.
• Age 67: his State Pension starts. Together with the DB pension, even after commutation, Robert and Anne would have a guaranteed income of around £22,000 a year before any further DC or ISA withdrawals.

Key point: Keeping the DB pension also protects Anne. If Robert died first, she would receive a pension of £6,200 a year (50% of £12,400) for the rest of her life, guaranteed and inflation-linked. A transferred fund could only match that by buying an annuity.

Do the 2027 Pension IHT Changes Alter the Picture?

From 6 April 2027, unused pension funds and most pension death benefits are due to come into the scope of inheritance tax for the first time. Robert wonders whether that changes the case for transferring. His idea is that a SIPP could be drawn flexibly and passed on to his children, whereas the DB pension pays him and Anne and then stops.

In fact, the 2027 change works against that idea. A transferred SIPP left to his children is expected to count towards his estate for inheritance tax, and it might also be taxed as their income if he died after 75. The change is relevant mainly for people with larger DC pots and strong estate planning aims.

For Robert, the guaranteed income from the DB pension is likely to be worth more in retirement security than any estate planning benefit from a SIPP. In this example, his and Anne's combined estate is unlikely to exceed the inheritance tax allowances available to them: a nil-rate band of £325,000 each, plus a residence nil-rate band of up to £175,000 each when a home passes to children or grandchildren. Our article on the 2027 pension IHT overhaul explains the change.

Likely Outcome of Regulated Advice: Keep the DB Pension

In an example like Robert's, a regulated adviser would be likely to conclude that he should keep his DB pension. The main reasons:

• The growth needed to match the DB pension, about 6.6% a year after charges, is demanding, and the downside if markets do badly early in retirement is significant
• Anne's 50% spouse's pension has real value
• Robert has enough DC and ISA savings to bridge the gap to 65
• The DB pension gives CPI-linked increases without investment risk
• There's no strong estate planning reason to transfer, given the likely size of the estate and the 2027 inheritance tax change

Lessons From Robert's Example

A large CETV isn't the same as good value. A six-figure figure can look generous, but the question is what it would cost to replace the guaranteed income you'd give up.

Bridging the gap often solves the problem. Many people consider a transfer because they want income before their DB pension starts. Other savings can often fill that gap without giving up the guarantee.

Spouse's pensions matter. A lifelong pension for a surviving partner is easy to overlook and expensive to replace.

Tax-free cash from the scheme is worth comparing. Commutation can provide a lump sum without a transfer, but it reduces your income for life, so compare the terms carefully.

Getting Regulated Advice and Help

DB pension transfers are complex and irreversible. By law, 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. That rule exists to protect people from the risks of giving up guaranteed income.

Robert's example shows that a high CETV doesn't automatically mean a transfer is in someone's best interests. The right answer depends on income needs, other assets, health, dependants and retirement goals. Our guide to final salary pensions explains the benefits in more detail.

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.

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This is an illustrative example. Robert and Anne 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.