Final salary pension transfers: Everything you need to know

A final salary pension is one of the last true guarantees in life. It gives you predictable, inflation-proof income for as long as you live, no matter what happens in the stock market. So why do people get tempted to leave? It’s simple: flexibility.

Transferring your final salary pension offers a lump sum that you can do what you want with – but it also puts all the risk on you. If your investments flop or you live longer than expected, you could run out of money. Still thinking about transferring? Let’s dig a little deeper.

• Why would you transfer out of your final salary pension?
• Why would you keep your final salary pension?
• What are the benefits of transferring a final salary pension?
• How to decide whether to transfer: 4 key questions to ask yourself
• Should I transfer my final salary pension?
• What should you do next?
• Final salary pension transfers: Can you claim compensation?

What is a final salary pension transfer?

A final salary pension transfer is when you move your pension from a guaranteed, employer-backed scheme (a defined benefit scheme) to a personal pension that you control (a defined contribution scheme).

Instead of receiving a set income for life, your money is invested, and your future income depends on how those investments perform.

This isn’t a simple switch – it’s a big financial decision. Once transferred, you can’t go back, and the responsibility for managing the money falls entirely on you. That’s why transfers are heavily regulated, and most advisers will only recommend them in specific circumstances. If you’re considering it, make sure you fully understand the risks and benefits before making a move.

What are the benefits of transferring a final salary pension?

While financial advisers often (and rightly) warn against transferring, it’s not always a terrible idea. Some people genuinely benefit from cashing in their final salary pension, depending on their financial situation. Here’s when it might make sense:

• You want more control – Fancy the idea of managing your own investments? A final salary pension transfer gives you that freedom – but also the responsibility if things go south.
• You’re not expecting a long retirement – If you’re in poor health and don’t think you’ll be around long enough to enjoy a steady pension income, a lump sum could make more sense.
• You’ve got other income sources – If your final salary pension isn’t your main source of retirement money, you might prefer flexibility over fixed payments.
• You want money to pass on – Final salary pensions often reduce or stop payments to beneficiaries when you die. So, if leaving money behind matters to you, a transfer might be worth considering.

Before you get too excited, let’s flip the coin and see why sticking to your final salary pension might be the smarter move.

Why would you keep your final salary pension?

If you’ve got a final salary pension, you already own one of the safest financial assets out there. Here’s what you’d be giving up:

• Guaranteed income for life – Unlike a pension pot that could run dry, a final salary pension pays you every month, for as long as you live.
• Inflation-proof payments – Your pension increases over time, so rising prices won’t eat away at your income. Can’t say the same for a lump sum stuck in a low-return investment.
• Zero investment risk – You don’t have to worry about stock market crashes, bad investments, or economic downturns. Your employer shoulders that risk, not you.
• No nasty surprises – With a final salary pension, you know exactly how much you’ll get and when. With a transfer, your retirement income depends entirely on how well your investments perform – which isn’t always well!

Should I transfer my final salary pension?

Still on the fence? Keep these 5 simple questions in mind before you make your decision:

• How comfortable are you with financial risk? – If watching investment values rise and fall gives you heartburn, transferring might not be for you.
• Do you have other sources of income? – If your final salary pension is your main safety net, think carefully before cutting it loose.
• What’s your health like? – If you expect a long retirement, guaranteed income will serve you well. If not, a lump sum might be better.
• Do you need the money now? – If you’re financially stable, keeping a reliable income stream could be the smarter move in the long-term.
• Have you considered the fees? – Transferring usually comes with costs: ongoing management fees, provider charges, etc. With a final salary pension, none of these apply.

If you’re still unsure, that’s a good thing. It means you’re thinking carefully – unlike some advisers who just want their commission fee. Speaking of which…

Are there any risks of transferring out of a final salary pension?

If you’re thinking of transferring your final salary pension based on the suggestion of a financial adviser, make sure you’re not walking into a trap. Think back to the conversation you had – if any of the following ring a bell, you were probably talking to a swindler trying to make some quick cash off you.

• Promises that sounded too good to be true – If someone guarantees high returns from “special investment opportunities”, run the other way. There are no guarantees in the world of investing.
• Not asking about your financial situation – A good adviser will dive into your goals and tolerance before making any suggestions. A bad one just wants you to sign your name on the dotted line as soon as possible.
• Massive transfer values or cash incentives – If your pension provider is throwing big money at you to leave, ask yourself why. (It’s usually because keeping you is more expensive for them!)
• Unregulated or risky investments – If your pension is being moved into something exotic, unregulated, or “exclusive”, you’re taking on huge risk – often with no safety net.

If any of these red flags sound familiar, you may have a mis-sold final salary pension transfer – and that means you could be owed compensation. Speak with a member of the team today to see if you can claim.

What should you do next?

Transferring your final salary pension isn’t something you can undo. Once it’s gone, it’s gone. Before making a decision, speak with a regulated financial adviser. Not your mate, not some guy from the internet, but an actual FCA-regulated adviser who knows all about pension transfers. It’s always good to get a second opinion, especially when your future is on the line, so just step back and double-check your options. A lump sum might look attractive now, but will it last 20-30 years?

Final salary pension transfers: Can you claim compensation?

If you’ve already transferred out of a final salary pension and weren’t given the full picture, you might have been mis-sold. We specialise in final salary pension transfer claims, so if you were advised to move your pension when it wasn’t in your best interest – or if you lost money due to poor advice – we can help you fight for compensation.

It costs nothing to check, and you won’t pay a penny unless you win your case. Our expert team has already recovered hundreds of thousands of pounds for our clients, and you could be next. Speak with a member of the team today to get your money back.