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5 reasons to transfer your DB pension.

More than 100,000 people transferred out of their defined benefit (DB) pensions last year. These people gave up their scheme benefits in return for a cash lump sum.

This is likely to annoy or upset the user, and escalate a potentially tricky situation

Whilst Final Salary schemes have always been considered as “Gold Plated” and “Guaranteed”, many pension schemes in the UK are either heavily in deficit (whereby they don’t have the funds to cover their liabilities) or attached to failing or failed companies such as recent big names BHS, Tata and Carillion going into liquidation. When a pension scheme is in peril then it is forced into the UK Government Pension Protector Fund (PPF) to protect the scheme members. When this happens, there’s an immediate 10% reduction in accrued benefits and annual income is capped at £35,000 per member for those not already receiving an income.

Because of cases such as the BHS and Carillion Pension Funds being forced into the PPF, some members of Final Salary pension schemes prefer to take their retirement destiny into their own hands and transfer their Final Salary into a Personal Pension plan.

If you’re still undecided, here are five reasons why a transfer might be suitable…



instead of taking a set pension on a set date, you have much more
choice how and when you
take your pension;
many people are choosing to ‘front load’ their pensions, so that they have more money when they are more
fit and able to travel,
or to act as a bridge until their state pension or other pension
becomes payable;

Tax-free cash

Tax-free cash

many DB pension schemes offer a pretty poor deal if you want to convert part of your DB
pension into a tax free lump sum;
although the tax-free cash is in theory 25% of the value
of the pension,
you often lose more than 25% of
your annual pension if you
go for tax-free cash



generous tax rules mean that if you leave behind money in a private pension pot it can be passed on with a favourable tax treatment, especially if you die before the age of 75; in a DB pension, while there may be a regular pension for a widow or widower but this is usually 50% less then the value, there is unlikely to be a lump sum inheritance to
children etc.;



those who live the longest get the most out of a DB pension but those who expect to have a shorter life expectancy might do better to transfer if this means there is a balance left in their pension fund when they die which can
be passed on;
note that HMRC may challenge this for those who die within two
years of a transfer;

Employer solvency

Employer solvency

while most pensions will be paid in full, every year some sponsoring employers go bankrupt;
if the DB pension scheme
goes into the PPF
[The Pension Protection Fund],
you could lose 10% if you are under pension age, and may get lower annual increases;
if you have transferred out,
you are not affected.

Changes in the pension world are fast moving and can be complex.

Let us put you in touch with a qualified adviser who can help you understand where you stand with your current pension and what any potential options are.

Put me in touch


DB Schemes in the UK

£1.7 trillion

of liabilities

10.6 million

members of DB Schemes in the
UK private sector

5 things you need to know about the PPF.

  • What does the Pension Protection Fund do?

    The Pension Protection Fund (PPF) is a lifeboat fund set up by the Government in 2005 for members of Defined Benefit pension schemes eg final salary schemes, should their employer go bust. Should this happen and if there aren’t enough funds in the pension scheme to pay current and future pension payments it can ask to be bailed out by the PPF. Without this safety net many pensioners and members could potentially lose their pension. Today, there are around 850 schemes in the PPF and this number is growing.

  • What does the Pension Protection Fund provide?

    Providing the scheme meets the PPF criteria, the scheme’s funds will be transferred to the PPF, and pensioners and members will receive compensation payments direct from the PPF replacing their pension payments. Compensation payments will be lower than the pensions that would have been paid had their employer not gone bust and the scheme been able to continue to pay out full pensions.

  • Is the Pensions Protection Fund a government body?

    The PPF is not funded by the Government. It is funded by levies on defined benefit schemes of solvent employers and from the funds of the schemes previously rescued by the lifeboat. Members of Defined Contribution schemes are not covered by the PPF.

  • Is the Protection Fund taxpayer funded?

    No, compensation and the cost of running the PPF is paid for through levies on eligible pension schemes.

  • What percentage of my pension will I get?

    Members will get less than they would have received if their scheme had not gone into the PPF.​ If you have not yet retired you will receive 90 per cent of what your pension was worth when your employer went bust, subject to the cap. Your payment will be frozen, but it will be revalued in line with inflation each year from the date your employer went bust until your normal retirement age. Payments will begin when you reach your normal retirement age and will be increased each year, as above. 

    Once in the PPF you cannot transfer out payments to another scheme. This means you aren’t able to consolidate all your pensions or use the pension freedoms from age 55. You cannot take your pension early. You have to wait until you reach your scheme’s normal retirement age. This is likely to be between ages 60 to 65, but will depend on the scheme rules.

    Your pension scheme doesn’t automatically go into the PPF. It can take about a year to assess if the scheme is eligible.

If you are unsure on the current status of your scheme
please get in touch so we can find out for you.

Need more details? Contact us

We are here to assist.