Is Keeping Your Final Salary Pension Really The Safest Thing To Do?

savings and investments - money for retirement.

There has been much discussion recently about the benefits and pitfalls of transferring a Final Salary Pension: things to watch out for and what should be included in the report you receive. The common stance amongst commentators seems to be that Final Salary Pension transfers are a dangerous thing to recommend for the adviser even if it is in your best interest.

Many advisers start with the premise that it is a bad thing to do and then must convince themselves it could be in your best interest. There is also a concern that stopping you from transferring could result in a complaint from you or your family further down the line. After all, pension benefits do not just impact the scheme member these days; this choice can also affect generations to come.

Death Benefits

The biggest issue surrounds the death benefits available in a defined contribution scheme versus those in a Final Salary Pension scheme. This used to only be an issue where the member was single and nothing would be payable on their death. But it was quite simple to deal with, as it was an all or nothing option and the member could easily understand the implications of not doing the transfer.

Things became a little more complicated when pension freedoms were introduced.

Take the example of a member’s spouse who does not need a regular income and would prefer a lump sum. This may well be a reason to transfer because, although a pension would be payable on the death of the member, more flexible benefits might be available. In addition, the benefits in the new scheme may not be taxable on death if the member’s death occurs before age 75.

Involving all those that may be impacted might not be feasible but it is wise to ensure those closest to you are made aware of any decision made so that everyone is on the same page.

This would be particularly relevant if you have any health issues where inheritance tax might be a consideration.

Underfunded schemes

Many Final Salary Pension schemes are underfunded with payment plans in place. This sort of information is relatively easy to come by but knowing if the employer is likely to be able to make these payments in the long term is more difficult.

Should the scheme end up in the Pension Protection Fund, a comparison of benefits will not have been accurate.

Execution only and insistent clients

Before pension freedoms came along, a member could opt to transfer without advice should they want to and many pension providers would accept the transfer. Now, though, advice is required in most cases.

This could easily be a contentious issue with the member: the existing scheme requires advice to be taken but is not concerned what that advice is but a new scheme will want to protect itself and will often insist the advice to transfer is positive. This could put pressure on the adviser to change their advice, even if this results in a poor outcome. At AAM we will not recommend any course of action which is not in your best interests.

There is no right or wrong answer to the transfer question in many cases. For some, there will be a fine line between a positive recommendation to transfer and a recommendation to stay in the Final Salary Pension scheme. Understanding your needs and effective research are key to ensure that all parties are aware of the implications and you are protected in the long run.

The varied retirement and death benefit options available make decisions even more complex on a purely factual basis, without even dealing with the soft facts that are just as important.

The view that advising someone to remain in a Final Salary Pension scheme is safer than advising a transfer does not hold true today.

Should you transfer your Final Salary Pension?

Most Final Salary Pension schemes remain affordable but many should do more to tackle increased deficits and reduce risk to pensioners, according to The Pensions Regulator.

Data from the regulator, released on 13th June 2017, revealed that challenging market conditions have led to a jump in deficits and lower funding levels for certain defined benefit schemes.

This comes at a time when transfer values are very high. Back in March, pension consultancy Xafinity reported defined benefit transfer values rose by almost 2 per cent in February.

At the end of the month, a £10,000-a-year pension would have, on average, a transfer value of £241,000.

That represented a month-on-month increase of £4,000 – or 1.7 per cent. It was also £31,000 more than the average transfer value before British voters elected to leave the European Union on 23 June 2016.

It is important that you understand the issues and how they may affect you before you commit to any transfer out of a Final Salary Pension.

A transfer may be right for you, especially with the current very high transfer values being offered, but it is vital that you seek advice from a fully qualified specialist in UK pension transfers.

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 UK Qualified Chartered Financial Planner with over 20 years of experience in the provision of Pensions advice. Ian is the holder of the CII G60 qualification in addition to being a Fellow of The Personal Finance Society, the UK’s premier professional body for Financial Planners.

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 Financial Planner now to arrange your UK Pensions Audit or email

Ian Black
Head of Wealth Solutions
AAM Advisory Pte Ltd


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