A defined benefit pension transfer is one of the most significant financial decisions you can make — and one you can never undo. This comprehensive guide explains how DB pension transfers work, what you stand to gain or lose, the regulatory requirements, and how to decide whether a transfer might be right for your circumstances.
1. What is a Defined Benefit Pension Transfer?
A defined benefit (DB) pension — sometimes called a final salary pension — promises to pay you a specific income in retirement for the rest of your life, regardless of investment performance or how long you live. Your income is typically based on your salary and the number of years you worked for the employer.
When you transfer a DB pension, you give up this guaranteed, inflation-linked income in exchange for a lump sum — known as the Cash Equivalent Transfer Value (CETV) — which is moved into a personal pension such as a Self-Invested Personal Pension (SIPP) or other defined contribution (DC) arrangement.
Once transferred, your retirement income is no longer guaranteed. Instead, it depends on how well your investments perform over time, and how you choose to draw an income in retirement.
2. How the Cash Equivalent Transfer Value (CETV) Works
The transfer value, or CETV, is the amount your pension scheme is prepared to pay to transfer your accrued benefits elsewhere. It represents the scheme actuary’s estimate of the cost of providing your promised benefits over your expected lifetime.
CETVs can vary significantly — sometimes representing 20–30 times the annual pension income you would receive. A 60-year-old with a guaranteed £10,000/year pension might receive a CETV of between £200,000 and £350,000, depending on when they request the quotation.
What affects your CETV?
A range of factors influence how your CETV is calculated, including:
- Gilt yields — the most significant factor. When gilt yields fall, CETVs rise; when yields rise, CETVs fall. This is because schemes must set aside more money to fund liabilities when investment returns are lower. Read more in our guide: How Do Gilt Yields Affect Defined Benefit Transfer Values.
- Your scheme’s funding level — well-funded schemes may offer higher CETVs
- Your age — older members generally receive lower multiples as they are closer to drawing benefits
- Scheme-specific actuarial assumptions — different schemes use different demographic data
- Inflation assumptions — schemes that offer higher inflation protection may offer higher CETVs
CETVs rose dramatically from 2020–2022 as gilt yields fell to historic lows. Since 2022, rising yields have significantly reduced transfer values — in some cases by 30–50%. For more detail, see our article on what affects defined benefit transfer values.
3. What You Give Up When You Transfer
Before exploring the potential benefits, it is essential to understand what you permanently give up the moment a DB transfer completes:
Your DB pension pays you a set income every month until you die. In a DC pension, you may run out of money if you live longer than expected or if investment returns disappoint.
Most DB pensions are inflation-linked — either fully (RPI/CPI) or capped (e.g. 5% per annum). DC pensions rely on investment growth to maintain purchasing power.
DB schemes typically pay 50% or more of your pension to a surviving spouse. Under a DC pension, your dependants only receive what is left in the pot.
If your employer goes bust, DB pensions can be protected by the Pension Protection Fund (PPF). Once transferred, this protection no longer applies.
4. Potential Benefits of Transferring
Despite the significant risks, certain individuals may find that a DB transfer aligns with their personal circumstances. Potential reasons people consider transferring include:
Greater Flexibility in Retirement
Under pension freedoms introduced in 2015, DC pensions offer complete flexibility over how and when you draw an income. You can take lump sums, use flexi-access drawdown, purchase an annuity, or combine these options. DB pensions typically offer a fixed start date and limited flexibility.
Improved Death Benefits
Under current rules, DC pension funds typically pass outside of your estate (pension IHT rules are changing in 2027 — see our 2027 pension IHT guide). This can make a DC arrangement particularly appealing for those who wish to pass wealth to their children. See more: Transferring a Final Salary Scheme to Secure Death Benefits.
Early Retirement
DB schemes often have set retirement ages and can penalise early retirement significantly. A DC pension may offer more flexibility for those considering retiring at 55 or pursuing early retirement planning.
Ill Health
Those with serious health conditions may have a shorter life expectancy than the scheme actuary assumes. In such cases, transferring a large CETV could potentially deliver more lifetime income than the DB pension would have paid.
Scheme Concerns
Where a scheme has a significant funding deficit, some members may consider a transfer — though the PPF provides considerable protection in the event of employer insolvency.
5. FCA Rules and the Advice Requirement
The Financial Conduct Authority (FCA) requires that anyone wishing to transfer a DB pension worth more than £30,000 must first obtain regulated financial advice from a Pension Transfer Specialist (PTS).
This rule exists because DB transfers are irreversible and the consequences of poor advice can be devastating for retirement security. The FCA has consistently stated its view that most people will be better off retaining their DB pension.
The Advice Process
A qualified PTS will conduct a thorough suitability assessment, which includes:
- A full analysis of your personal and financial circumstances
- Assessment of your attitude to risk and capacity for loss
- Comparison of the DB pension benefits against what the CETV could realistically achieve in a DC arrangement
- A Transfer Value Analysis (TVAS) or Abrdn/EValue critical yield calculation
- Consideration of your overall retirement income needs
Abridged vs. Full Advice
The FCA introduced abridged advice as a lower-cost initial step. A PTS can provide abridged advice concluding that a transfer is unlikely to be suitable, without a full TVAS. Only if abridged advice cannot rule out suitability should full advice be proceeded with.
FCA Register Verification
Always verify your adviser holds the required permissions to provide DB transfer advice using the FCA Register. Not all financial advisers are qualified to advise on DB transfers — this is a specialist area requiring specific qualifications and permissions.
6. The Transfer Process Step by Step
Understanding the practical steps involved can help set expectations. A typical DB transfer takes 8–16 weeks from initial request to completion:
- Request a CETV quotation — Contact your pension scheme to request a CETV. You are entitled to one free quotation per year. The quotation is typically guaranteed for 3 months.
- Obtain regulated advice — Engage a qualified PTS who will assess your suitability. This involves providing extensive financial information including income, assets, liabilities, and retirement goals.
- Receive a Suitability Report — Your adviser produces a written suitability report setting out their recommendation. Many reports will recommend against transferring.
- Select a receiving scheme — If proceeding, choose the DC pension (usually a SIPP) into which the CETV will be transferred.
- Complete transfer documentation — Both the sending scheme and receiving scheme require signed forms and verification of the advice received.
- Transfer completes — The CETV is moved to your DC pension. The process typically takes 4–8 weeks from paperwork submission.
- Investment selection — Once transferred, you work with your adviser to invest the CETV in line with your risk profile and retirement goals.
7. Tax Implications of DB Pension Transfers
Understanding the tax framework is crucial when evaluating a potential DB transfer.
Tax-Free Cash
Under a DB scheme, you are typically entitled to take a tax-free lump sum (Pension Commencement Lump Sum or PCLS). Following the abolition of the Lifetime Allowance in April 2024, tax-free cash is now capped at the Lump Sum Allowance (LSA) of £268,275 across all pensions. The Lump Sum and Death Benefit Allowance (LSDBA) is £1,073,100.
In a DC pension, 25% of the fund is typically available as tax-free cash, up to the LSA. However, your DB scheme may offer a more generous tax-free cash entitlement through commutation — it is important to model both options carefully. See our guide on pension tax-free lump sums.
Income Tax
All pension income — whether from a DB pension or DC drawdown — is taxed as income in the year it is received. Flexibility over timing withdrawals in a DC arrangement may allow for more tax-efficient income planning in some cases.
Inheritance Tax (2027 Changes)
Currently, DC pension pots are typically outside your estate for inheritance tax purposes. However, from April 2027, most unused DC pension pots will be included in the estate for IHT calculations. This reduces one of the traditional attractions of DB-to-DC transfers for estate planning purposes. See our 2027 pension IHT guide for full details.
8. Should You Transfer? Key Questions to Ask
There is no universal answer to whether a DB transfer is suitable. The following questions may help clarify your thinking before seeking regulated advice:
- Do I have other guaranteed income in retirement (State Pension, other DB schemes, property income)?
- What is my health and expected longevity?
- How important is flexibility — for me, and for passing wealth to my family?
- Could I absorb the risk of investment underperformance without seriously affecting my retirement?
- Do I have dependants who rely on the spousal pension element of my DB scheme?
- Am I comfortable with the responsibility of managing my own pension investments?
- How is my DB scheme funded — is there a significant deficit?
For more detailed guidance on the questions to ask before making a transfer decision, see our article: Ask These Questions Before You Transfer Your Pension Funds.
9. Alternatives to a Full DB Transfer
A full transfer is not the only option. Several alternatives may be worth exploring:
Partial Transfer
Some schemes offer a partial defined benefit transfer, allowing you to transfer a portion of your accrued benefits while retaining a guaranteed income from the remaining DB entitlement. This can provide a balance of flexibility and security.
Pension Consolidation
If you have multiple DC pensions, consolidating them may simplify management and reduce charges — without the need to transfer a DB pension at all. See also: Should I Consolidate My Pensions?
Phased Drawdown (DC Pensions Only)
If you already have DC pensions alongside your DB, flexible drawdown from those pots may provide the income flexibility you seek — potentially removing the need to transfer your DB benefit at all.
Deferred Retirement
Many DB schemes apply early retirement penalties. Deferring retirement by even a few years can significantly increase your guaranteed income — in some cases making a transfer less attractive by comparison.
10. How to Find a Qualified Pension Transfer Specialist
Only a qualified, FCA-authorised PTS can provide advice on DB pension transfers above £30,000. When selecting an adviser, consider:
- FCA authorisation — Verify their permissions on the FCA Register at register.fca.org.uk
- Specialist qualifications — Look for the G60 or AF3 pension transfer qualification
- Fee transparency — Understand how they charge (fixed fee, percentage, or combination)
- Independence — Independent advisers are not tied to any product providers
- Experience — Ask how many DB transfer cases they complete annually
A qualified PTS will always provide a written suitability report before any transfer proceeds, clearly setting out their reasoning and recommendation.
Frequently Asked Questions
Can I transfer my DB pension if I am already receiving it?
No — once you have commenced drawing your DB pension, you cannot transfer it. The option to transfer is only available to deferred members (those not yet in receipt of the pension).
What is the critical yield and why does it matter?
The critical yield is the investment return your DC pension would need to achieve in order to replicate the income your DB pension would have provided. The higher the critical yield, the harder it is for a transfer to be suitable — because it implies an unrealistically high return would be required from investments.
How long does the DB transfer process take?
Typically 8–16 weeks from the date you first request a CETV quotation to the transfer completing. Schemes are legally required to process transfer requests within certain timeframes, but delays can occur during periods of high demand.
What happens if I transfer and then the DC pension provider goes bust?
The Financial Services Compensation Scheme (FSCS) may offer some protection for DC pension assets up to £85,000 in the event of a provider’s insolvency. However, assets held in investment funds are typically ring-fenced from the provider’s balance sheet, offering additional protection.
Is it always wrong to transfer a DB pension?
No — while the FCA considers most people will be better off retaining their DB pension, a transfer may be suitable in specific circumstances, such as serious ill health, strong personal preference for flexibility, comprehensive alternative income sources, or legitimate estate planning needs. This is why personalised, regulated advice is essential.
Seeking Professional Advice
A defined benefit pension transfer is irreversible and the stakes are high. The information in this guide is educational and does not constitute financial advice. Your personal circumstances — health, other income, family situation, risk tolerance — will determine whether a transfer is suitable for you.
We strongly recommend speaking to a qualified, FCA-authorised pension transfer specialist before taking any action.
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