Case Study: Utility Company DB Pension: Should Alan Transfer His £178,000 CETV?

For someone two years from their DB scheme's retirement age, with other savings that already give flexibility, transferring a guaranteed pension rarely makes sense. In this illustrative example, Alan, 63, has a £178,000 CETV from a utility company scheme. A regulated adviser would most likely conclude that he should keep his DB pension and use his SIPP and ISA for flexibility.

At a glance

• Illustrative example: Alan, 63, former utility company engineer
• DB scheme: private sector utility company; 12 years' service, deferred for 10 years
• CETV: £178,000
• Guaranteed pension: £8,400 a year from age 65
• Growth needed to match the scheme (critical yield): about 5.8% a year
• Likely outcome of regulated advice: keep the DB pension

Background

Imagine Alan, who is 63 and lives in the East Midlands. He spent 12 years as a senior engineer with a large utility company before taking voluntary redundancy at 53. Since then he has worked as an independent infrastructure consultant, earning around £28,000 a year. That covers day-to-day costs, but he would like to step back from work by 65.

Alan's financial picture:

• Deferred private sector DB pension (utility company scheme): CETV £178,000, expected pension £8,400 a year from 65
• SIPP built up from his later self-employment: £67,000, in a balanced multi-asset fund
• Stocks and shares ISA: £52,000
• No mortgage; he owns his home outright
• Married to Janet (60), who has her own DC pension of £84,000 and will receive her State Pension from 67
• Two adult children, no financial dependants

Alan has read about the pension freedoms and wonders whether moving his DB pension into his SIPP would give him more flexibility, particularly around tax-free cash, investment growth and passing money on, in light of the inheritance tax changes due in 2027.

Important: If the transfer value of safeguarded benefits, such as a DB pension, is over £30,000, the law requires regulated advice from an FCA-authorised firm with the pension transfer permission before you can transfer. Alan's £178,000 CETV is well above that level.

What the numbers show

Critical yield: about 5.8%

The critical yield is the investment growth Alan's SIPP would need each year to provide the same income as his DB pension at 65, with the same inflation increases. In this example it is about 5.8% a year. Since 2018 the FCA has also required advisers to produce a transfer value comparator, which compares the CETV with the estimated cost of buying the same income on the open market.

A figure of 5.8% may look achievable. But it assumes steady growth over the two years until Alan's pension would start, followed by decades of reliable returns while he takes income: no bad run of years early on and no major market falls. Sustaining that while drawing an income makes it much harder.

Key point: A lower growth figure does not make a transfer easy or suitable. With only two years before the pension starts, the investment risk is front-loaded. A poor year or two now could noticeably reduce the pot before any income begins.

The value of £8,400 a year, guaranteed

Alan's DB pension pays £8,400 a year from 65, increasing each year in line with the scheme rules. The cost of buying a similar inflation-linked income from an insurer can be high, and depending on annuity rates at the time it may be more than the CETV on offer. The transfer value comparator in a regulated adviser's analysis would show this directly.

Alan's likely income if he keeps the DB pension

If Alan keeps his DB pension and uses his other savings sensibly, his income might look like this:

• DB pension (from 65): £8,400 a year
• SIPP drawdown (from 63): around £10,000 to £12,000 a year, managed carefully
• ISA: available tax-free as a buffer
• State Pension (from 67): the full new State Pension is £241.30 a week in 2026/27, about £12,548 a year
• Household income from 67: roughly £30,000 a year or more, including Janet's pensions

That would comfortably cover the couple's expected spending of around £26,000 to £28,000 a year without relying on uncertain investment returns for their core income.

The 2027 inheritance tax question

Alan has asked about the inheritance tax changes. From 6 April 2027, unused pension funds and most death benefits are due to come into the scope of inheritance tax. He wondered whether moving his DB pension into a SIPP would help.

In practice, the change makes a transfer less attractive for inheritance planning, not more. A DB pension pays an income for life and then a reduced spouse's pension to Janet; it does not leave a pot to pass on. For a couple in Alan and Janet's position, an adviser would look at their whole estate, the exemption for transfers between spouses and the nil-rate bands available to them, and might well find that inheritance tax is not a pressing concern. Either way, it would be a weak reason to give up a guaranteed income.

Key point: The 2027 inheritance tax changes are a genuine planning point, but they are not a reason to transfer a DB pension if a transfer would otherwise be unsuitable. Each person's estate needs looking at individually.

The minimum pension age change

The normal minimum pension age rises from 55 to 57 on 6 April 2028. Alan is already 63, so the change does not affect his access to his SIPP. It is still worth checking early in any planning conversation.

Likely outcome of regulated advice: keep the DB pension

In a case like this, a regulated adviser would most likely conclude that Alan should keep his DB pension. The reasons an adviser would typically weigh:

1. The critical yield of about 5.8% involves meaningful investment risk, given the short time before the pension starts
2. Alan's SIPP and ISA already give him flexibility and drawdown options
3. The DB pension provides a guaranteed, inflation-linked income from 65, reducing his reliance on investment returns later in life
4. The 2027 inheritance tax changes do not create a reason to transfer
5. There is no sign of particular concern about the scheme's funding, and the Pension Protection Fund provides a safety net if the employer fails

This is consistent with the FCA's starting assumption that a transfer is unlikely to be suitable for most people.

What Alan might do instead

Alongside keeping the DB pension, an adviser might typically suggest Alan looks at:

• Moving his SIPP to a lower-risk mix of investments for the two years before retirement
• Using the ISA as a tax-free bridge for living costs from 63 to 65, reducing pressure on the SIPP
• The DB scheme's tax-free cash option at 65, which involves giving up some pension for a lump sum, and how it fits his plans
• Updating his expression of wishes on the SIPP
• Janet's DC pension, as a separate piece of advice

Getting help

Alan's example shows a common situation: a private sector DB pension that looks like it might be worth transferring, but on closer analysis provides a guaranteed income that a SIPP cannot match at an acceptable level of risk. A lower critical yield than in many cases does not automatically make a transfer suitable. Timing, health, other assets and family circumstances all matter.

If you have a deferred DB pension and are approaching retirement, free guidance from MoneyHelper and Pension Wise can help you understand your options. For a recommendation on a transfer, you need an FCA-authorised firm with the pension transfer permission. Be wary of anyone who contacts you out of the blue about your pension, and check the FCA ScamSmart site before acting.

If you would like a free chat about how DB transfers and the advice process work, you can get in touch. The chat gives general information, not advice. If you then want regulated advice on a transfer value of £50,000 or more, 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.

This is a hypothetical example. Alan is not a real person and the figures are examples only. Rules and rates are as at October 2026. It is not advice and should not be relied on as a basis for any decision.