Defined Benefit Pension Transfer – Key Issues To Consider

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When considering a defined benefit pension transfer there are many issues to consider and mistakes can be costly. In many cases, it will be best to stay with the existing scheme but for some, a defined benefit pension transfer can deliver real advantages. The overriding consideration should, of course, be transfer risk versus benefits.

A key measure is the ‘critical yield’. This shows the investment return required (each year) from any new arrangement to match the benefits of the defined benefit pension scheme you are giving up but even this measure has its problems so it is best to not rely on this measure alone.

The transfer value must be generous as this gives you the headroom to be relatively cautious about how you invest the fund transferred from your pension scheme while retaining the value and flexibility that comes with the transfer route. The defined benefit pension transfer value should also be high enough so that you have an opportunity to preserve a significant part of the capital value for the next generation.

It is important you consider (and are comfortable with) the following before deciding if a defined benefit pension transfer is for you (or not):

  • You have the financial resources to tolerate the risks involved in the pension transfer option.
  • You are comfortable with the extra responsibility involved in looking after an invested fund on an ongoing basis. It helps if you have had some experience of investing savings in things like equity based Individual Savings Accounts (ISA’s) or Unit Trust’s, OEIC’s or Investment Bonds.
  • You fully understand the benefits you would leave behind in your defined benefit scheme, including options for early and late retirement.
  • You understand precisely what you will do with the defined benefit pension transfer value if you take it and have a firm plan in place.
  • You understand the tax implications of the pension fund created by the transfer.
  • You have performed a critical investment return assessment which will look in detail at what investment returns will be required to match what you may have expected from the defined benefit pension. If inflation were to rise, interest rates and investment returns would also rise as well so you need to understand the real investment return target over and above the rate of inflation.
  • If you opted for protection against the lifetime allowance at A-Day in 2006 you need to understand how this impacts on your transferred fund.

Given the complexity and the risks involved it is essential to seek out appropriate Independent Financial Advice to aid your decision making process. Safeguards are already in place as financial advice must be received on any transfer from a Defined Benefit Pension with a value of £30,000 or more. That may be the legal requirement but it is a very good idea to seek Independent Financial Advice on smaller funds also. Pension providers are refusing to accept defined benefit pension transfers unless there is solid proof that independent professional advice has been received.


If you do decide on a Defined Benefit Pension Transfer there is no going back so it is vitally important to consider all the issues in detail. If you are unable to allocate the time and effort (plus the cost of Independent Financial Advice) to the process then it is probably best to stay with your defined benefit pension scheme.

Should you like a no obligation initial discussion then please do not hesitate to give us a call on 0800 043 8341. We are FCA authorised and regulated and highly experienced in Defined Benefit Pension scheme transfers. Alternatively, complete the form below, add a suitable time, and we will call you. We operate UK wide.

The information in this article does not constitute financial or other professional advice.


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