Archived article: This article was correct at the time of publishing. Tax, investments and pension rules can change over time so the information below may not be current.

Final salary pension transfers – look before you leap

Since the “pension freedom” reforms of July 2015 there has been an increase in people transferring away from defined benefit (final salary) pensions into new flexible pensions. But is this always the right decision? Andy James, Head of Retirement Planning at our wider Tilney Group looks at why people may choose to transfer, and what they should be aware of before taking action.

Why are more people transferring?

With the new freedom over money held in defined contribution pensions (such as SIPPs), this increase in pension transfers shouldn't be surprising. People now have greater flexibility and more choice over what to do with their money.

Low interest rates are also playing their part. They have pushed the transfer values offered for final salary pensions towards all-time highs. With more money on the table, more people are tempted to take the cash and transfer their pension.

What to consider before transferring a pension

If you think a pension transfer may be the right option, there are several considerations to take into account before making the final leap. A final salary pension comes with guarantees – so you know how much money you will get from day one. On the other hand, the amount you get from a defined contribution pension depends on how well your money is invested.

Final salary pensions also pay out an income for at least the rest of your life, regardless of how long you live. With a defined contribution pension you could run out of money in later life if you make too many early withdrawals, your investments perform badly or you live for a lot longer than expected.

More control and freedom

This isn't to say that transferring out of a final salary pension is always the wrong thing to do. The main downside of these pensions is their lack of flexibility – you cannot vary how you take an income.

Defined contribution pensions such as SIPPs let you make withdrawals tax-efficiently. You can spread your tax-free cash over a number of years and choose how much income to withdraw each year. You could limit the amount of Income Tax you pay and will have more money left to fund your retirement.

Passing on your pension and managing Inheritance Tax

Another big plus for defined contribution pensions is how they are inherited by the next generation. Final salary pensions will die with you or your dependants, whereas defined contribution pensions can be passed on outside your estate.

As the pension stays outside of your estate, it won't ever be charged with Inheritance Tax. This makes defined contribution pensions a great estate planning tool. If you can fund your retirement through other savings and investments that form part of your estate, you could reduce your Inheritance Tax bill while leaving your pension to be passed on to the next generation potentially tax-free.

Speak to an expert before you take any action

If you are interested in a pension transfer, you should get professional financial advice before taking any action. The decision is a big one that will affect your finances for years to come, so it pays to speak to a financial planner first to find out if a pension transfer is really in your best interest.

We have a big team of expert financial planners available through our wider Tilney Group. To book a free initial consultation just fill in this short form on the Tilney website, call our experts on 020 7189 2400 or email us at


Before you consider transferring a pension, it is important to ask yourself: Will I lose any valuable benefits or features from my existing pension plan? Will I incur any penalties on my existing pension if I transfer? Is it an occupational final salary pension scheme? (in which case it is very unlikely to be advisable to transfer) Have I considered the charges on my current plan? (a new arrangement may be more expensive – especially if you have a stakeholder pension).

SIPPs are not suitable for everyone. If you don’t want to invest across different asset classes or don’t think you will make use of the investment choices that SIPPs give you then a SIPP might not be right for you. Please contact us for guidance or advice if you are unsure whether a SIPP is right for you.