Don’t be tempted to transfer out of your final salary pension scheme
Switching out of final-salary schemes is very rarely a good idea, no matter how much money is on offer
The transfer values paid to savers switching out of their employers’ final-salary pension schemes have hit an all-time high, stoking fears that people may be encouraged to give up valuable guaranteed retirement benefits. Specialist consultant XPS Pensions Group says a 64-year-old entitled to a £10,000 annual pension for life could currently expect to receive £260,800 if they transferred their benefits to a defined-contribution scheme such as a personal pension plan. That represents an increase of more than 15% since March. The higher transfer values reflect changing actuarial assumptions, notably expectations of higher long-term inflation.
But many savers may be tempted to make the wrong decision. In June, says XPS, the annualised equivalent of 1.05% of all members eligible for a transfer left their final-salary scheme – the highest figure since March 2019. The Financial Conduct Authority (FCA), the City regulator, has repeatedly said that for the vast majority of members of final-salary pension schemes, staying is a better option than taking a transfer. Moving to a different type of pension means giving up the guaranteed benefits that final-salary plans offer and exposing yourself to stockmarket risk. For some savers, there may be advantages in transferring, particularly where their final-salary pension is not likely to be their main source of retirement income. Other types of pension offer greater flexibility on withdrawals and can also offer inheritance-tax planning advantages.
However, even with a higher transfer value at the outset, it is likely that many members opting to transfer will end up receiving less pension income from alternative types of arrangement. They must also take responsibility for managing the money and may miss out on valuable dependents’ benefits.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Struggling employers unnerve savers
Regulators have warned that the pandemic could give rise to an increase in pension scams, with many people in dire financial straits owing to the virus. Members of final-salary pension schemes may also now be more likely to transfer out because they are concerned about the financial viability of employers standing behind their plans. But a generous compensation fund is available in these circumstances and the FCA insists this consideration should not be a factor in the decision about whether to transfer.
Some protections are in place, with anyone now considering transferring benefits worth more than £30,000 required to take independent financial advice before proceeding. Many schemes warn members about the perils of transferring. From October the FCA is also banning contingent advice on pension transfers, where advisers only charge a fee if their guidance is that savers would be better off going ahead with a transfer. The regulator is concerned that this model results in savers being wrongly advised to transfer.
The FCA now offers an online “advice checker” service for people concerned they may have received poor transfer advice, with the Financial Ombudsman Service ready to investigate cases of potential wrongdoing.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.

David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.
-
Zoopla: House sales fall for first time in two years as buyers wait for Autumn BudgetThe average price of a house in September was £270,000, down £1,000 from August as the housing market’s Christmas slowdown came early, Zoopla says
-
Number of high-earning women jumps 12% – how to convert income into pensionsMore women than ever are paying the highest rate of tax as record numbers succeed in high paying professional roles. But their pension saving still needs to catch up
-
Klarna leads a financial revolution – should investors buy?Klarna has ambitions to rewire the global payments system and has huge growth potential
-
Are venture-capital trusts worth investing in?Venture-capital trusts are a tax-efficient way to invest in early-stage companies. But are they worth the risk?
-
Can Rachel Reeves save the City?Opinion Chancellor Rachel Reeves is mulling a tax cut, which would be welcome – but it’s nowhere near enough, says Matthew Lynn
-
'Gen Z is facing an AI jobs bloodbath'Opinion It has always been tough to get your first job, but this year, it's proving tougher than ever. AI is to blame, says Matthew Lynn
-
Beazley: a compelling specialist insurerThe insurer Beazley is unusually profitable at present, and that looks set to continue. The stock is also a valuable portfolio diversifier, says Jamie Ward
-
Is Britain heading for a big debt crisis?Opinion Things are not yet as bad as some reports have claimed. But they sure aren’t rosy either, says Julian Jessop
-
What is the Enterprise Investment Scheme and should you have one?The Enterprise Investment Scheme is tax-efficient and potentially lucrative. Taking a chance on the scheme could trim your family’s IHT bill, says David Prosser
-
What are wealth taxes and would they work in Britain?The Treasury is short of cash and mulling over how it can get its hands on more money to plug the gap. Could wealth taxes do the trick?