The Consolidator’s Guide to final salary pensions

Published: 27 July 2018

Consolidating pension and investment pots into one place can make it easier to understand and keep track of your potential future wealth. It could even save you money in charges. But is it right for you?

Our consolidator’s guide articles aim to help you decide, by looking at the practical ins and outs of consolidating different types of savings pots, from personal and workplace pensions, to ISAs and investment accounts.

Many people will have final salary pensions, often viewed as the pensions gold standard, among the pots they have collected over their working lives.

Final salary schemes, also known as Defined Benefit (DB) pensions, have been in the headlines on a regular basis over the past couple of years, and not always for good reason. They offer a guaranteed income on retirement which is great for their members, but costly for employers to maintain. Tata Steel1 and BHS2 are both examples of where these costs became problematic, with potentially serious implications for everyone involved.

If you’re thinking of consolidating your pensions to an investment platform like Alliance Trust Savings and want to include any DB pensions you have in that, you’ll have to transfer a ‘cash equivalent’ to the value of your guaranteed benefits in the DB scheme. In other words, you’ll have to give up your guaranteed income. Please note that UK Government rules requires any DB transfers of more than £30,000 to be recommended by a Financial Adviser. This means that we will not accept any DB transfer in with a value of more than £30,000 without the recommendation of a qualified Financial Adviser.

The case for sacrificing a guaranteed income is usually hard to make. There are a few instances in which it could make sense, as we’ll see, but not many.

Nevertheless, Hymans Robertson estimates that up to a million people will transfer out of their DB pensions over the next 25 years3. This is largely because changes to the law in 2015 increased the flexibility of many Defined Contribution (DC) pension schemes for savers4.

So, for consolidators, what are the key questions when it comes to DB pensions?

Can I transfer out of my DB scheme?

Not necessarily. Transfers to DC pensions aren’t allowed for members of unfunded DB public sector schemes. These are schemes where money isn’t kept aside and invested to pay income to pensioners. Instead, their income is paid out of public funds at the time.

That means civil servants, teachers and NHS employees, among others, can’t transfer out. However, if you’re in a funded public sector scheme (such as the local government pension scheme) or a private sector DB scheme, in theory you’re able to transfer.

What benefits would I be giving up?

As well as your own guaranteed pension income, you may be entitled to other benefits through your DB scheme. These can include a guaranteed pension for your spouse or civil partner after you die, or life cover for example. Would you be happy to give these benefits up?

An understanding of how much it would cost you to buy the benefits you are giving up on the open market is also essential. This gives you an idea of the size of pot you’d need at retirement in your DC arrangement to be no worse off than if you’d stayed in your DB scheme.

Am I happy to take risks with this money?

With a DB pension, you don’t need to worry that investment markets can go down as well as up. It’s the sponsor for your scheme (usually the employer who offered it to you) who has to manage this risk and make sure there is enough money available to pay your guaranteed income.

With a DC scheme you’re the one taking on this risk. You could get back less than if you’d remained with your DB scheme. You’ll be responsible for choosing and managing your own investments.

What could I stand to gain?

The main potential advantage is the level of control and flexibility that DC pensions can now offer you. From age 55 you’ll usually be able to choose exactly when and how you take pension income in line with your personal needs and objectives.

What would I stand to lose?

Many members of private DB schemes have been offered attractive incentives to transfer out by employers seeking to reduce their pension overheads. Even without those incentives, the cash transfer amount you are offered may seem large compared to your guaranteed pension income.

Whilst these factors may make a transfer seem more tempting, they don’t change the fact that you’ll be giving up a guaranteed income for the rest of your life (likely to be 20 to 30 years after retirement for many of us) in exchange for something that isn’t guaranteed.

When might a transfer make sense?

It always depends on your personal circumstances, but examples of when a transfer might make sense are:

  • if you need to access your pension savings earlier and more flexibly than possible in your DB scheme, perhaps because ill health compromises your life expectancy
  • if your goal is to retire earlier than your DB pension allows, it isn’t going to be your main source of income and you can afford to and want to take some risks with the money
  • if it’s a priority to be able to pass pension money on after you die (with a DB pension there is nothing to pass on after you and anyone entitled to a survivor’s pension die, but anything left in a DC pension pot can usually be passed on free of Inheritance Tax).

Should I take advice?

The risks of DB pension transfers mean advice from someone with specialist qualifications is compulsory for anyone considering a DB pension transfer worth more than £30,000 in cash.

Your Financial Adviser will walk you through a process that assesses the transfer value offered by your DB scheme. That’s to ensure you understand the investment returns that the arrangement to which you’re moving would have to achieve to offset the guaranteed income you’d be giving up.

If you both agree a transfer would be right for you, they should also be able to help you make sensible investment choices in your new arrangement and then keep on track towards your goals by managing those investments on an ongoing basis.

How do I find a Financial Adviser?

The Money Advice Service offers tips on how to choose a Financial Adviser. You can also find an Adviser near you through sites like or


Given the facts, it’s clear that anyone with a DB pension should think carefully, and take advice, before including it in any consolidation plan. There are a few circumstances when it could make sense, but these are likely to be the exception rather than the rule.


Coming next

We’ll turn to the ins and outs of consolidating the different kinds of Defined Contribution (DC) workplace pensions you may have accumulated over your working life.

Important information

This is provided for general information only and takes no account of personal circumstances. It is not a recommendation to buy or sell. It is provided solely to support you in making your own investment decisions. If you have any doubts as to their suitability you should seek expert advice. Alliance Trust Savings does not give financial or investment advice.

Laws and tax rules may change in the future without notice.

Please be aware that the value of investments can fall as well as rise so you could get back less than you invest.

1 The Guardian, Steelworkers face huge pension cuts as Tata completes merger, 22 December 2017
2 BBC, Pension scheme at heart of BHS woes, 25 April 2016
3 FT Adviser, A million defined benefit transfers expected, 8 February 2018
4 As above

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Alliance Trust Savings Limited is registered in Scotland No. SC 98767, registered office, PO Box 164, 8 West Marketgait, Dundee DD1 9YP; is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, firm reference number 116115. Alliance Trust Savings Limited gives no financial or investment advice. ‘Alliance Trust Savings’, ‘ATS’ and 'AT Savings' are all brand names of Alliance Trust Savings Limited together with the ‘Alliance Trust Savings’ logo are owned by and used with the permission of Alliance Trust PLC, the previous owner of Alliance Trust Savings Limited.