Defined benefit pensions: should you transfer?

Pensions provider Aegon has come up with seven questions to ask yourself before seriously considering transferring and potentially losing out on valuable benefits

Transferring out of a defined benefit pension scheme is a big decision – so big, in fact, that the Financial Conduct Authority is considering increasing standards for advisers.

The FCA warns that “most consumers will be best advised to keep [defined benefit pensions] and there is potential for significant consumer harm if unsuitable advice is given to consumers who are considering giving up these benefits.”

Before jumping into the how, think we should explain a bit more about why more people are doing so (higher values offered, the uncertainty of company pensions and companies want it off their books)

Why would anyone want people to opt out of a defined benefit scheme?

Defined benefit schemes are incredibly generous, offering the recipient a guaranteed pension income for life that rises with inflation.

You might wonder why anyone would give up what is often referred to in the media as a gold-plated pension.

The answer is quite simply the mind-boggling sums being dangled in front of scheme members. Earlier this year we reported how one person was offered £850,000 to give up a guaranteed £17,000 final salary income.

So the option of pocketing a large sum of money up front, and the flexibility that brings with it, is obviously tempting.

But making such a life-changing decision should absolutely not be made lightly.

Getting professional pension advice is highly recommended and in fact a legal requirement if the pension you're transferring is worth more than £30,000.

You can learn a lot more about the various advantages and disadvantages in our guide to transferring pensions.

Should you transfer?

Responding to the FCA’s consultation, pensions provider Aegon has put together a list of seven questions to ask yourself if you’re considering a transfer.

Aegon argues that this guide could be turned into a guide with 'traffic light' advice, for consumers wondering whether they should seek advice.

Please note that if your answers all point to ‘more likely’ the next step is not making a transfer, but getting further financial advice, as Aegon’s guide is for illustration only. The same rule applies if you mainly get ‘less likely' results.

These questions cover just some of the many pros and cons of switching away from a defined benefit pension.

Seven key questions

Please answer ‘yes’ or ‘no’ to these questions and see the accompanying advice, classes as more likely to suit a transfer (green), neutral (orange) and less likely (red.

As noted above, if most of your answers indicated a transfer was ‘more likely’ to be worth exploring, this doesn’t mean you should transfer straight away: seek financial advice first.

If your answers mainly pointed to ‘less likely’, it doesn’t mean a transfer is completely off the table but you should certainly seek financial advice before going any further.