How to Decide on Your Final Salary Transfer?

When you are enrolled in a DB (defined benefit) pension scheme, you may, at one point, be offered an option to transfer your DB pension to another type of pension scheme (commonly a defined contribution). This is called a final salary transfer, which is a huge and irreversible decision that requires a careful weighing up of the different pros and cons that the transfer may bring.


A DB pension scheme, otherwise referred to as final salary pension scheme, is a workplace pension where you are guaranteed an annual income for the rest of your life, the amount of which is based upon your average or final salary. In a final salary pension scheme, it is your employer’s responsibility to pay into a central fund (with the exception of schemes that are directly funded by taxpayers). You will then be assigned a “normal retirement age” from which your pension will be paid. The amount that you are paid depends on various factors, but most likely on your final salary rate. One of the main benefits of a DB scheme is that it guarantees your income for the rest of your natural life. As long as the scheme remains funded, you are guaranteed a pension income regardless of your age and how long you live.


A final salary transfer trades in your DB pension for one fixed-size fund of the same kind that’s found in DC or defined contribution pensions. This means giving up a guaranteed pension for life for something that’s called a cash equivalent transfer value, which can then be invested in another pension pot from which to draw your income from age 55. This makes your pension accessible at an earlier age and at the same time provides you the option to vary your income levels. Unspent pension can likewise be inherited by your defined beneficiaries without any inheritance tax. Deciding whether or not to go through a final salary transfer is all a matter of weighing up the positive and negative implications on your future finances.

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