Safeguarded benefits explained

Safeguarded benefits are pension benefits that come with some form of guarantee, such as a final salary pension, a Guaranteed Minimum Pension or a guaranteed annuity rate. In law, they are any benefits other than money purchase and cash balance benefits. If yours are worth more than £30,000, you must take regulated advice before you can transfer or convert them.

What are safeguarded benefits?

The term comes from section 48 of the Pension Schemes Act 2015, which came into force on 6 April 2015, the same day the pension freedoms began. It defines safeguarded benefits as "benefits other than money purchase benefits and cash balance benefits".

That is a definition by exclusion, so it helps to start with what is not safeguarded:

• Money purchase benefits are ordinary defined contribution pots. What you get depends on how much was paid in, investment growth and charges. There is no promise about the income at the end.
• Cash balance benefits are a less common type of scheme where a set amount of money is promised for your retirement, but not a set level of income.

Anything else counts as a safeguarded benefit. In plain terms, that usually means a pension with a promise about the income you will receive, or about the rate at which a pot will be turned into income. The FCA uses the same definition in its rules (FCA Glossary).

Examples of safeguarded benefits

The most common examples are:

• Defined benefit (final salary and career average) pensions. A promised income for life, usually linked to your pay and years of service, often with yearly increases and a pension for a surviving partner. Our defined benefit pension guide explains how they work.
• Guaranteed Minimum Pensions (GMPs). The minimum pension a contracted-out final salary scheme must pay for service between 1978 and 1997. See our GMP guide.
• Guaranteed annuity rates (GARs). A promise in some older personal pensions and insurance policies to turn your pot into an income at a fixed rate. The FCA states that a pension policy with a GAR has a safeguarded benefit (PERG 12.6). Read our guide to guaranteed annuity rates.
• Guarantees in section 32 buy-out plans. Many section 32 plans carry a GMP that the insurer must pay, and some have a GAR.
• Retirement annuity contracts with a GAR. Many older retirement annuity contracts include a guaranteed annuity rate.

Other guarantees, such as a promised minimum pension underneath a defined contribution pot, can also make a benefit safeguarded. If you're not sure, ask your scheme or provider directly whether your pension includes safeguarded benefits.

Flexible benefits and safeguarded benefits

The same Act also defines flexible benefits (section 74). These are:

• money purchase benefits
• cash balance benefits
• benefits, other than money purchase or cash balance, that are worked out by reference to an amount available for the member

That last group is the tricky one. These benefits are built up like a pot, but they carry a guarantee, so they are both flexible and safeguarded. The regulations call them safeguarded-flexible benefits (SI 2015/742, regulation 8A). A pension pot with a guaranteed annuity rate is the classic example.

Type of benefit	Safeguarded?	Example
Money purchase	No	A typical personal pension or workplace DC pot
Cash balance	No	A promised sum of money at retirement
Defined benefit	Yes	A final salary or career average pension
Safeguarded-flexible	Yes	A pension pot with a guaranteed annuity rate

The £30,000 advice requirement

Section 48 says that if you have safeguarded benefits, your scheme's trustees or managers must check that you have received appropriate independent advice before they:

• transfer your benefits to a scheme where they would become flexible benefits, for example moving a defined benefit pension to a personal pension
• convert your benefits into flexible benefits within the same scheme
• pay you an uncrystallised funds pension lump sum from them

There is an exception where the safeguarded benefits are worth £30,000 or less (SI 2015/742, regulation 5). Since 6 April 2018, the value used is the transfer value of the benefits. So, in short, advice is legally required where safeguarded benefits are worth more than £30,000.

The rule is checked by the scheme, not by you. The adviser gives a written confirmation that advice has been given, including the firm's FCA reference number (regulation 7), and the scheme checks it before going ahead.

Who can give the advice

The Act requires the advice to come from an "authorised independent adviser": a firm authorised by the FCA for the relevant regulated activity, or its appointed representative (section 48(8), as amended by the Bank of England and Financial Services Act 2016).

For defined benefit pensions, that means an FCA-authorised firm with the pension transfer permission, and the advice must be given or checked by a qualified pension transfer specialist. Our guide to what a pension transfer specialist is explains the role. The FCA's rules don't require a pension transfer specialist where the only safeguarded benefit involved is a guaranteed annuity rate (COBS 19.1.1AR).

I don't give defined benefit transfer advice. I can advise directly on pensions with guaranteed annuity rates through Arthur Browns Wealth Management Ltd, subject to suitability; advice is chargeable. For defined benefit pensions, I offer a free, no-advice chat about how transfers and the advice process work, and 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.

The FCA's starting assumption

The FCA's rules say an adviser looking at a transfer or conversion of safeguarded benefits should start by assuming that it will not be suitable (COBS 19.1.6G). The adviser should only recommend it if they can clearly show, on contemporary evidence, that it is in the client's best interests.

In other words, the FCA's starting assumption is that a transfer is unlikely to be suitable for most people. That reflects how hard it is to replace a guaranteed income, with inflation increases and a partner's pension, from a pot that you have to manage yourself. The FCA explains this on its pension transfer page.

Extra protections for guaranteed annuity rates

Since 6 April 2018, schemes have had to give members with safeguarded-flexible benefits a personalised risk warning before they give up the guarantee (SI 2015/742, regulations 8A to 8C). It must say that the benefits include a potentially valuable guarantee that will be lost, explain how the guarantee works, and include illustrations based on your own benefits. If you receive one, read it carefully.

Public sector pensions

Most public sector pensions are safeguarded benefits, but the unfunded schemes, such as the NHS, Teachers', Civil Service, Police, Firefighters' and Armed Forces schemes, can't be transferred to a scheme offering flexible benefits. This has been the case since April 2015 (Pension Schemes Act 2015, section 68). The Local Government Pension Scheme is funded, so its members can transfer, subject to the same advice rules. Our public sector pensions guide explains more.

What if my safeguarded benefits are worth £30,000 or less?

The legal advice requirement doesn't apply, but the guarantees you would give up are just as real. It is still worth understanding what you have before you decide. MoneyHelper offers free, impartial guidance, and if you're 50 or over, you can book a free Pension Wise appointment about your defined contribution pensions.

Whatever the size of your pension, be wary of anyone who contacts you out of the blue about a transfer, or who offers to "unlock" your pension. Check the FCA ScamSmart site before dealing with any firm.

Frequently asked questions

What are safeguarded benefits in a pension?

They are pension benefits other than money purchase and cash balance benefits, as defined in section 48 of the Pension Schemes Act 2015. In practice, they are benefits with a guarantee, such as a final salary pension, a GMP or a guaranteed annuity rate.

Is a guaranteed annuity rate a safeguarded benefit?

Yes. A pension pot with a GAR is a safeguarded-flexible benefit: it is built up like a pot, but carries a guarantee about the income it can buy. The FCA states that a pension policy with a GAR has a safeguarded benefit.

Do I have to take advice to transfer safeguarded benefits?

If they are worth more than £30,000, yes. Your scheme or provider must check that you have taken advice from an FCA-authorised adviser before it can transfer or convert them. The value used is the transfer value.

Is a defined contribution pension a safeguarded benefit?

Usually not. An ordinary defined contribution pot is a money purchase benefit. But if it includes a guarantee, such as a guaranteed annuity rate, that part may be a safeguarded benefit.

How do I know if my pension has safeguarded benefits?

Ask your scheme or provider in writing. They have to work out the value of any safeguarded benefits for the £30,000 test, so they should be able to tell you.

If you'd like to understand how transfers of safeguarded benefits and the advice process work, book a free, no-advice chat. It is general information, not advice.