This website describes our Pension Tracing Service. We are not affiliated with the Government’s Pension Tracing Service and if you have come to our site by mistake you can find the UK Government’s Pension Tracing Service here
Tax treatment varies according to individual circumstances and is subject to change.
Transferring out of a defined benefit/ final salary pension is unlikely to be in the best interest of most people.
What is a Final Salary Pension?
A defined benefit pension scheme – sometimes called a final salary pension scheme – is one that promises to pay out an income based on your earnings pre-retirement. Unlike defined contribution (DC) pensions, the amount you’ll get at retirement is guaranteed, and it will be paid directly to you – you won't have to use your pension pot to decide your next move.
Reasons to Leave a Final Salary Pension Scheme
Flexibility - Instead of taking a set pension on a set date, you have much more choice how and when you take your pension. Many people are choosing to ‘front load' their pensions so that they have more money when they are more fit and able to travel, or to act as a bridge until their state pension or other pensions become payable.
Tax-free cash - Many Final Salary pension schemes offer a pretty poor deal if you want to convert part of your defined benefit pension into a tax-free lump sum. Although the tax-free cash is in theory 25% of the value of the pension, you often lose more than 25% of your annual pension if you go for tax-free cash. In a personal pension (DC) you get exactly 25% of the pot as tax-free cash.
Inheritance - Generous tax rules mean that if you leave behind money in a personal pension pot it up to 100% can be passed on with a favourable tax treatment, especially if you die before the age of 75. In a Final Salary pension, while there may be a regular pension for a widow or widower, there is unlikely to be a lump sum inheritance to children etc.
Health - Those who live the longest get the most out of a final salary pension, but those who expect to have a shorter life expectancy might do better to transfer if this means there is a balance left in their pension fund when they die which can be passed on. (Note that HMRC may challenge this for those who die within two years of a transfer.)
Employer Solvency - While most pensions will be paid in full, every year some sponsoring employers go bankrupt. If the final salary pension scheme goes into the PPF, you could lose 10% if you are under pension age and may get lower annual increases, underfunded Schemes are likely to reduce Transfers to reflect the funding position; reducing the potential benefits of a transfer but if you have transferred out, you are not affected. But Pensions in payment are protected 100%.
Reasons to Stay in a Final Salary Pension Scheme
Certainty - With a Final Salary pension, you get a regular payment that lasts as long as you do but with a Personal Pension pot, you have to face ‘longevity risk' - not knowing how long you will live and therefore how much you can spend each year.
Inflation - A Final Salary pension has a measure of built-in protection against inflation, but with a Personal Pension pot you have to manage this risk yourself, which can be expensive.
Investment risk - With a Personal Pension you have to handle the ups and downs of the stock market and other investments. You also need to be careful not to draw too much of your fund to ensure that you don’t run out of money in retirement. Whereas with a Final Salary scheme you don't need to worry - it's the scheme's problem.
Provision for survivors - By law, Final Salary pensions have to offer a minimum level of pensions for widows/widowers etc., whereas if you use a personal pension pot to buy an annuity, it dies with you unless you pay extra for a ‘joint life' policy or additional protection.
Tax – Final Salary pensions are relatively favourabe from the point of view of pension tax relief.
It's in the best interests of most people to stay in their Defined Benefit Pension.
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Transferring out of a final salary pension is unlikely to be in the best interest of most people.
What are the different types of Final Salary Pension?
If you've saved into a final salary pension scheme, your savings, along with the contributions of your employer and the tax relief you receive from the government, have been invested in the stock market over your working years. But the income you ultimately receive from your pension is a guaranteed, pre-agreed amount. This is why they are called 'defined benefit' pensions.
There are two types of defined benefit pension:
Final salary schemes, which are based on how much you're paid when you finally retire
Career average schemes, which are based on an average of your salary across your career.
Both types of pension provide valuable benefits, the biggest of which is something called 'index linking. This means that your pension income is guaranteed to rise each year so it can try to keep up with rising prices in the future. This protection is usually linked to a measure of inflation.
Private Sector vs Final Salary Pensions
Defined benefit pensions have historically been provided by both private companies and public sector organisations. Final salary pension numbers are in decline, but millions of people still hold them.
If you hold a private-sector DB pension, you have the right to request a transfer, as do members of so-called ‘funded’ public sector schemes. In a funded plan, contributions from the employer and employee are invested in a fund towards meeting the benefits. Some public sector schemes, such as those for teachers, NHS workers, the armed forces, the civil service, police, and fire service, aren’t linked to specific pension funds (they’re paid out of general taxation). These are known as ‘unfunded’ DB pensions.
What is a Final Salary/Defined Benefit Pension?
A Final Salary or Defined Benefit pension is a type of workplace pension that promises to pay a guaranteed income for life, based on your salary and the number of years you've worked for your employer.
Can I transfer my Final Salary/Defined Benefit Pension to a different scheme?
Yes, you can transfer your Final Salary/Defined Benefit pension to a different pension scheme, but it's a complex decision that requires careful consideration and professional financial advice. Not all schemes will allow a transfer.
Transferring out of a final salary pension is unlikely to be in the best interest of most people.
What are the benefits and risks of transferring a Final Salary/Defined Benefit Pension?
The benefits may include greater flexibility and the potential for higher returns, but risks include losing the guaranteed income for life and potential exposure to investment volatility.
Unsure about what to do with your Final Salary Pension? Contact us today for tailored advice from our experienced advisers and take the first step towards securing your retirement.
Specialised Expertise: We have expert knowledge and experience in handling Final Salary Pensions, ensuring you receive advice that is well-suited to your specific situation and retirement goals.
Tailored Guidance: We provide personalised advice based on a thorough understanding of your pension scheme and financial objectives, helping you make informed decisions that align with your needs.
Comprehensive Pension Services: We offer a full range of pension services, including transfer analysis, retirement planning, and ongoing management, to support your financial well-being throughout retirement.
The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested. Tax treatment varies according to individual circumstances and is subject to change.
The guidance and/or information contained within this website is subject to the UK regulatory regime and is therefore targeted at consumers based in the UK. Beals Wealth Management and Pension-Tracing-Service-UK.co.uk are trading styles of Beals Mortgage and Financial Services Ltd, an appointed representative of Quilter Financial Services Limited and Quilter Mortgage Planning Limited which are authorised and regulated by the Financial Conduct Authority. Beals Mortgage and Financial Services Ltd is registered in England and Wales, No: 08286166. Registered Address: Unit 1 Fulcrum 2 Solent Way, Whiteley, Fareham, PO15 7FN
Auto enrolment, Taxation Advice including Inheritance Tax Planning, Estate Planning and Pension Tracing are not regulated by the Financial Conduct Authority.
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