Retirement PlanningAAM-Should-you-transfer-your-final-salary-pension

The Final Salary Pension Dilemma

Advice on Final Salary pensions remains a hot topic in the media, especially after the scandal at British Steel where many were transferred to unsuitable, and in many cases, unregulated investments putting their pensions at risk.

As an expatriate, if you were previously a member of a UK Pension, it is vital to understand what your pensions may do for you and whether you are on track for the retirement you want.

With all of the noise, it can be difficult to work out what you should do if you have a Final Salary pension with a former employer. In this article we consider the pros and cons of transferring a Final Salary pension and the key points you need to consider before making a decision. One thing is certain, if you have not recently had a UK Pension Audit you should have one as soon as possible.

Should you transfer your Final Salary Pension?

Sometimes referred to as a Defined Benefit (or DB) pension, with a final salary pension your former employer will pay you a guaranteed fixed income from the day you retire, until the day you die. If your spouse survives you, they will receive a reduced pension for life.

In the UK, many employers are offering pension scheme members the option to give up their guaranteed income in exchange for a much higher lump sum that will be held within a personal pension pot – known as a Defined Contribution pension.

There are several reasons why companies are keen to move people out of DB schemes – not least the fact that the cost of providing Final Salary schemes has risen due to increasing life expectancy and low interest rates.

What you need to consider

Transferring a DB pension is probably the most important and potentially complicated financial decision you will ever make and should not be undertaken lightly. Because of this, the Financial Conduct Authority (FCA) has made it mandatory to receive professional financial advice before transferring.

The biggest risk is that you could run out of money. When you transfer you exchange a guaranteed income for a lump sum that you will need to provide you with an income for the rest of your life.

After transferring, your pension will usually be invested into a range of different assets – for example shares and bonds.

If these don’t perform well, your lump sum may decrease at a quicker rate than your income needs can cope with. This is known as investment risk. On the other hand if they grow faster than the rate needed to match the benefits from your Final Salary pension you could have a higher income or money to leave to your loved ones.

Some think that to avoid investment risk, all you have to do is leave the money in the bank. Not quite! This leaves you open to inflation risk – meaning that over time your money can buy less.

For example, if you retire at 60 with £250,000 in the bank and take £10,000 every year, you may think that you could take £10,000 a year and still have £50,000 at the age of 80. If you want to keep the purchasing power of your money the same, you will need to withdraw more each year. For example, if inflation sits at 2 per cent, you would run out of money two years earlier than that.

Why do people transfer?

You will have to assess your own mortality, which is difficult without the help of a professional adviser. Many switch with the objective that they want to have as much money as possible on death, while still living on a good income in retirement.

If the final salary scheme was offering £10,000 a year, but a projection showed it is likely a transfer could deliver more as a sustainable income, a transfer is likely to be suitable.

Another consideration could be the tax you will pay in retirement so, if your scheme was guaranteeing an income of £30,000, a transfer could be a way to allow income to be drawn in a more tax efficient way.

You can leave your Defined Contribution pensions to anyone, not just your spouse, and it will not incur inheritance tax.

Final salary schemes, on the other hand, usually only allow your spouse to continue to receive a guaranteed income, at a reduced rate, until their death but care is needed because some schemes will pay nothing unless you survive to retirement!

If leaving your loved ones with a large lump sum is a priority of yours, and you have enough income from other sources or don’t need all of the income from the DB scheme, transferring may well be the best option to achieve this.

So, what now?

It is important that you understand these issues and how they may affect you, to ensure you plan for the retirement you want.

It is vital that you seek advice from a fully qualified specialist.

AAM Wealth Solutions can provide you with a detailed UK Pension Audit, which will consider these issues in light of your needs, goals and circumstances and make a recommendation showing the right course of action for you to achieve the best retirement outcome.

Why you should have an AAM Wealth Solutions UK Pension Audit now

Every AAM UK Pension Audit is checked by Ian Black, a Chartered Financial Planner with over 20 years of experience in the provision of retirement planning advice.

You will always receive a full recommendation on your Optimum Pension, whether that is the Pension(s) you already have or an alternative.

An AAM UK Pension Audit will put you in an informed position, able to make informed choices about your Optimum Pension and how best to secure your perfect retirement.

Contact your AAM Wealth Manager now to arrange your UK Pension Audit or email [email protected]


Ian Black

Director of Global Wealth Structuring

AAM Advisory



This article is an op-ed piece by Ian Black. The views expressed in this article are those of the author and do not necessarily reflect the views of AAM Advisory Pte Ltd. This document/article should not be construed as an offer, solicitation of an offer, or a recommendation to transact in any securities/products mentioned herein. The information does not take into account the specific investment objectives, financial situation or particular needs of any person. Advice should be sought from a licensed financial adviser regarding the suitability of the investment product before making a commitment to purchase the investment product. Past performance is not necessarily indicative of future performance. Any prediction, projection, or forecast on the economy, securities markets or the economic trends of the markets is not necessarily indicative of future performance. Whilst we have taken all reasonable care to ensure that the information contained in this document is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness. Any opinion or estimate contained in this document is subject to change without notice. The above report may contain data obtained from third parties and as such we cannot guarantee the accuracy of this data.