Defined Benefit pension transfers: Know the risks before you move

A Defined Benefit pension (also known as a final salary or career average pension) gives you a fixed income in retirement based on your salary and years of service. Unlike Defined Contribution pensions – where your savings depend on investment performance – DB pensions aren’t tied to the stock market. They provide a level of security and predictability that’s hard to beat.

What are the risks of transferring out of a Defined Benefit pension?

A transfer might seem like a good idea at first – especially if your pension pot appears to be growing. But appearances can be deceiving, and you could end up with far less in retirement. Here’s why:

• You lose your guaranteed income – A DB pension pays out for life, no matter what happens. A transferred pension depends on investment returns, which can be unpredictable.
• High fees eat into your pension – Adviser fees, fund charges, and ongoing management costs can drain your savings over time.
• Investments might underperform – If the funds your pension is invested in don’t do well, your retirement income shrinks.
• Critical yield matters – Your new pension has to grow at a certain rate (known as the critical yield) just to match your DB pension. If it falls short, you lose out.

Why are people transferring out of Defined Benefit pensions?

If DB pensions are so good, why do people leave them? The main reason is flexibility. Transferring allows you to take control of your money, access a lump sum, and pass on more to your family. But here’s the catch: all the risk shifts to you.

While the Financial Conduct Authority (FCA) says DB pension transfers should only happen in rare cases, bad financial advice has led many people down the wrong path. So how do you know if this happened to you?

Figure out if you were mis-sold a DB pension

Not every DB pension transfer is bad, but plenty have been done for the wrong reasons. If any of these sound familiar, you could have been mis-sold:

• You weren’t fully informed – Did your adviser explain the risks clearly, or did they just focus on the positives of a lump sum payment?
• You felt pressured – Were you encouraged to transfer quickly, without being given time to think?
• The fees weren’t explained – If adviser fees, transfer charges, or investment costs were brushed over, that’s a red flag.
• You weren’t asked about your needs – A good adviser should assess your situation in detail. If they didn’t, you may have received bad or unsuitable advice.

Sound familiar? Give us a call today.

Worried your defined benefit pension might have been mis-sold? Don’t panic! You could make a claim for compensation. Get in touch now to see if you qualify – it’s totally risk-free and only takes a few minutes to get started.

Don’t let a bad transfer cost you

Transferring out of a defined benefit pension is a big decision – one that can’t be undone. While some transfers make sense, many people have been misled into giving up a guaranteed, secure income for riskier alternatives. If that sounds familiar, you might have been mis-sold.

The good news? You don’t have to just accept the loss. If you were given bad advice, you could be entitled to compensation. It costs nothing to check if you have a valid claim – just give us a call today to get started.