Transferring an Occupational Defined Benefit Scheme

You can usually transfer an occupational defined benefit (DB) pension out of a funded scheme if you haven't started taking it, but you give up a guaranteed, inflation-linked income for life in exchange for a pot you have to manage yourself. If the transfer value is over £30,000, the law requires you to take regulated advice first, and the FCA's starting assumption is that a transfer is unlikely to be suitable for most people.

Occupational DB pension schemes, sometimes called final salary or career average schemes, are among the most valuable financial assets many people build up during their working lives. For members wondering whether to move out of one into a personal pension or SIPP, the question deserves careful, regulated consideration.

This article explains the main factors involved in transferring an occupational DB pension: the regulatory requirements, the benefits you would give up, the process, and the kind of circumstances an adviser weighs up, with an illustrative example.

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What is an occupational defined benefit pension?

An occupational defined benefit pension is a workplace pension that promises a set retirement income, usually based on your salary and how long you were a member. The income is paid for life and normally increases each year in line with inflation, subject to caps set by the scheme rules and the law. Our guide to defined benefit pensions covers the basics.

With a defined contribution (DC) scheme, your income depends on how your investments perform. With a DB pension, the scheme and the employer carry the investment risk and the risk of members living longer than expected. You receive the income you were promised.

Common types include:

• Final salary schemes: the pension is based on your pay at or near when you left or retired. See our final salary pension guide.
• Career average revalued earnings (CARE) schemes: the pension is based on your average earnings across your membership, revalued for inflation.
• Hybrid schemes: a combination of DB and DC elements.

Key fact: most private-sector DB schemes have closed to new members, and many to future build-up, but millions of people still have deferred DB pensions from former employers. Public-sector schemes are a special case. Unfunded schemes such as the NHS, Teachers', Police, Firefighters', Civil Service and Armed Forces schemes cannot transfer to a DC pension, and haven't been able to since April 2015. The Local Government Pension Scheme is funded and can transfer. Our page on public-sector pensions explains more.

What is a Cash Equivalent Transfer Value (CETV)?

When you consider transferring an occupational DB pension, the scheme calculates a Cash Equivalent Transfer Value (CETV): the amount it will pay to move your pension rights to another pension arrangement. Our guide to the transfer value of a pension explains it in detail.

The CETV is the scheme's calculation, using actuarial assumptions, of what your future guaranteed benefits are worth today. Key points:

• you generally have a legal right to a transfer value if you haven't started taking your pension and you ask more than a year before the scheme's normal pension age
• the scheme has up to three months from your request to give you a guaranteed statement
• a CETV is guaranteed for three months from its guarantee date. If you don't apply to transfer within that time, it has to be recalculated
• you are usually entitled to one free statement every 12 months, and the scheme may charge for more
• transfer values move with financial markets. They typically rise when gilt yields fall and fall when gilt yields rise. Our article on how gilt yields affect transfer values explains why
• 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 you can transfer

Transfer values can be substantial, often many times the annual pension. How many times varies widely between schemes and over time, depending on gilt yields, your age and the benefits the scheme provides. Multiples were unusually high when gilt yields were very low in 2020 and 2021, and have generally been lower since yields rose from 2022.

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An illustrative example

To show how the decision-making process works, imagine the following person.

Illustrative example

• Age 62, recently divorced
• Deferred DB pension: £8,240 a year from age 65
• CETV offered: £230,000
• Other income: £13,000 a year from two buy-to-let properties
• No mortgage, no dependants (two adult children)
• Monthly outgoings: about £800
• Very little in savings

In this example, his main concerns are:

1. Inflexibility. The DB pension pays a set income, with little ability to vary it.
2. Death benefits. As a divorcee with no partner, there is no one to receive a spouse's pension. He feels that on his death the value of his pension would be lost rather than passing to his children.
3. Access to capital. With very little in savings, he would like to be able to get at capital when he needs it.

A regulated adviser with the pension transfer permission would weigh these concerns against what he would give up. On one side, his property income and future State Pension would give him a secure income that comfortably covers his low outgoings, so he may not rely on the DB pension to meet essential spending. That is one of the less common situations in which an adviser might conclude a transfer, or a partial transfer, could be suitable.

On the other side, an adviser would also look closely at:

• the risks of relying on rental income, which can fall or stop, and which depends on the properties being let and maintained
• the guaranteed, inflation-linked income he would give up, and the investment return a transferred pot would need just to match it
• whether his need for capital could be met in other ways, for example by building savings from his property income or taking tax-free cash from the scheme at retirement
• the inheritance tax position. Unused pension funds and most pension death benefits are due to come into the scope of inheritance tax from 6 April 2027, which weakens the argument that a transferred pot is a good way to pass money on
• his attitude to investment risk and his ability to manage a drawdown plan over what could be 25 years or more

Even in a case like this, keeping the DB pension, or transferring only part of it if the scheme allows, would be seriously considered. The outcome depends entirely on the individual's full circumstances.

Important: this is an illustrative example only. Everyone's situation is different, and the FCA's starting assumption is that a transfer is unlikely to be suitable for most people. Regulated advice from an adviser with the pension transfer permission is essential.

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The FCA's position on DB pension transfers

The Financial Conduct Authority (FCA) is clear: advisers must start from the assumption that a transfer from a defined benefit pension is unlikely to be suitable. This reflects the exceptional value of guaranteed pension income, particularly as people live longer, and the risks of investment underperformance.

Key regulatory requirements include:

• If your safeguarded benefits are worth more than £30,000, the law requires you to take advice before transferring. The advice must come from a firm with the FCA's pension transfer permission and be given or checked by a pension transfer specialist, an adviser with the required specialist qualifications.
• The adviser must carry out an appropriate pension transfer analysis (APTA), including a transfer value comparator (TVC) showing how the CETV compares with the estimated cost of replacing the income.
• Since 1 October 2020, advisers must consider whether an available workplace pension would be a suitable home for the money and justify recommending anything else.
• Also since 1 October 2020, contingent charging has been banned, so most firms cannot charge only if you go ahead with a transfer. There are limited carve-outs for people in serious ill health or serious financial hardship.
• Since July 2023, the FCA's Consumer Duty has required firms to deliver good outcomes and fair value.
• Advisers must document their assessment thoroughly and keep records. You can read more on the FCA's pension transfer pages.

Warning: be wary of any firm that seems to recommend DB transfers routinely, or that contacts you out of the blue. The FCA has taken significant action against firms that gave unsuitable transfer advice, and some of that led to large redress schemes. Check that any firm is on the FCA Register with the pension transfer permission, and read the FCA's ScamSmart warnings.

Benefits you give up by transferring

Before any transfer, it's essential to understand exactly what you would be giving up. DB benefits are very valuable and hard to replicate:

• Guaranteed income for life. You cannot outlive a DB pension. A personal pension in drawdown can run out.
• Inflation protection. Most DB schemes increase pensions in payment each year, usually in line with inflation up to a cap such as 2.5% or 5%, depending on the scheme rules and when the pension was built up.
• A spouse's or dependant's pension. Many schemes pay around half of the member's pension to a surviving spouse or civil partner for life.
• No investment risk. The scheme carries the investment risk. You don't.
• Pension Protection Fund (PPF) cover. If your employer becomes insolvent and the scheme can't pay your benefits in full, the PPF pays compensation. Broadly, this is 100% of the pension for people who have reached the scheme's normal pension age and 90% for younger members, though increases are usually lower than the scheme would have paid. Our article on what happens if your employer goes bust explains more.
• Nothing to manage. The scheme runs everything. There are no investment decisions to make.

The transfer process: what to expect

If, after regulated advice, you decide to go ahead with a transfer, the process usually involves these steps:

1. Request a CETV. You, or the adviser with your permission, ask the scheme for a guaranteed transfer value. The scheme has up to three months to provide it, although many respond sooner.
2. Full advice. The adviser looks in detail at your finances, objectives, attitude to risk and the specific benefits you would give up. Some firms offer abridged advice first. This shorter first stage can only conclude "don't transfer" or that full advice is needed. Our article on abridged advice explains it.
3. Personal recommendation. The adviser gives you a written suitability report saying whether or not a transfer is suitable for you, and why.
4. Paperwork. If you go ahead, both the receiving scheme and the DB scheme need forms completed, and the DB scheme will want evidence that you have taken the required advice.
5. Scam checks. Trustees must carry out due diligence on the receiving scheme. If they see warning signs, they can pause the transfer or require you to take guidance from MoneyHelper first.
6. Completion. The DB scheme pays the transfer value to the new pension. Schemes generally have to complete a transfer within six months of the CETV guarantee date, as long as you have applied in time and provided what they need.

From the first CETV request to completion, the whole process usually takes several weeks to a few months. It can take longer in complex cases or if extra checks are needed.

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The regulatory and tax context in 2026

The landscape has changed significantly in recent years. Points worth knowing in 2026:

• The Lifetime Allowance was abolished from 6 April 2024. It was replaced by the Lump Sum Allowance (£268,275) and the Lump Sum and Death Benefit Allowance (£1,073,100). Tax-free cash is generally 25%, up to the Lump Sum Allowance.
• Pensions and inheritance tax from 2027. Unused pension funds and most pension death benefits are due to come into the scope of inheritance tax from 6 April 2027. This weakens one of the traditional arguments for moving out of a DB pension to pass wealth on.
• The normal minimum pension age rises to 57 on 6 April 2028. The minimum age for taking pension benefits rises from 55, unless you have a protected pension age.
• Consumer Duty. Since July 2023, firms have had to show that their advice delivers good outcomes and fair value.

Getting regulated advice and help

Deciding whether to transfer an occupational DB pension is one of the most significant financial decisions many people make. The stakes are high either way: keeping a guarantee you don't need, or giving up a guarantee you can't afford to lose. In most cases it is the second risk that matters more, and the decision to transfer is usually irreversible.

If you are thinking about it, take advice from an FCA-authorised adviser with the pension transfer permission. A good adviser will not rush you, will make sure you understand what you would be giving up, and will only recommend a transfer where the evidence clearly shows it is suitable for you.

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.

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. You can read more about how it works.

Frequently asked questions

What is a Cash Equivalent Transfer Value (CETV)?

A Cash Equivalent Transfer Value (CETV) is the amount an occupational defined benefit scheme will pay to move your pension rights to another pension arrangement. It is the scheme's calculation of what your future guaranteed benefits are worth today. A CETV is guaranteed for three months from its guarantee date, after which it has to be recalculated. Schemes have up to three months to provide one, and you are usually entitled to one free statement every 12 months.

Do I need regulated advice to transfer my defined benefit pension?

Yes, if your safeguarded benefits are worth more than £30,000. The law requires you to take advice from an FCA-authorised firm with the pension transfer permission before you transfer. The FCA's starting assumption is that a transfer is unlikely to be suitable for most people, because of the value of a guaranteed income for life.

What benefits do I give up when transferring a defined benefit pension?

You give up a guaranteed income for life that you cannot outlive, inflation-linked increases, any spouse's or dependant's pension, protection from investment risk (which the scheme carries, not you) and Pension Protection Fund cover if your employer becomes insolvent. These benefits are very valuable and hard to replicate in a personal pension or SIPP.

How long does a defined benefit pension transfer take?

It usually takes several weeks to a few months from start to finish, but timescales vary. The process includes requesting a CETV (schemes have up to three months to provide it), taking regulated advice, completing paperwork and scam checks, and the scheme paying the transfer. Schemes generally have to complete a transfer within six months of the CETV guarantee date.

Has the abolition of the Lifetime Allowance changed the case for DB transfers?

The Lifetime Allowance was abolished from 6 April 2024 and replaced by the Lump Sum Allowance (£268,275) and the Lump Sum and Death Benefit Allowance (£1,073,100). That changed the tax position for some people with large pensions. But the regulatory position has not changed: the FCA's starting assumption is still that a transfer is unlikely to be suitable for most people. The planned 2027 inheritance tax changes are also relevant for anyone thinking about death benefits.