Britons with ‘defined benefit’ or ‘final salary’ UK pensions could find their pension today is worth much more than they think. This is because current ‘transfer values’ – pay-outs offered for cashing in these types of pensions – are at an all-time high. 

In a final salary pension, an employer commits to pay a proportion of your salary – usually increasing annually with inflation – for the duration of your retirement. Offering the security of a minimum income for the rest of your life, these pensions are considered to be extremely valuable. Transferring out of such a ‘gold-plated’ arrangement is not generally seen as sensible. 

However, with some transfer values increasing by hundreds of thousands of pounds, the tide may have turned. Usually, transfer values are calculated as a multiple of 20 times the annual salary due at retirement. For a final salary pension worth £15,000 a year, this represents a pay-out of £300,000. But today there have been cases of transfer values of 40 times the final salary benefits – for the same pension, that would mean £600,000. Properly managed, this kind of sum could provide a regular retirement income in excess of the original annual payment.

Why are transfer values so high? 

Put simply, providers are finding it harder to afford promised pension benefits. Schemes are generally funded by investments in government bonds, which are consistently underperforming amid ultra-low interest rates. Add to this the trend for people to live decades into retirement – meaning a longer commitment to provide benefits – and there is often a shortfall between the pot and the pay-out. Providers offering higher-than-usual transfer values hope to offload future pension liabilities.

The recent collapse of several high-profile pension schemes shows that long-term sustainability is a problem. If your pension scheme fails, you can receive up to £34,655 compensation a year from the government’s Pension Protection Fund at age 65. If your pension exceeds this value and your scheme looks unstable, consider transferring to protect your benefits.

What do you need to consider?

Other than a tempting pay-out, transferring can provide estate planning advantages (including freedom to pass benefits on beyond your spouse), and the opportunity to reinvest in more tax-efficient structures for your country of residence. With transferred funds you can also gain flexibility to draw income in euros (reducing currency exchange risk), but a downside is that your money can run out and becomes exposed to investment risk that is absent with a guaranteed income. See more about what to consider before cashing-in a 'gold-plated' pension

Ultimately, whether you should transfer a final salary pension depends on your unique set of circumstances and goals. 

Remember: transferring means forfeiting the right to a guaranteed lifetime income for a one-off payment, so you need to take extreme care to ensure you are making the right decision. 

Today’s generous transfer values may be short-lived, so if you do decide to act, move quickly. Make sure you take personalised, regulated advice (mandatory for benefits worth £30,000+) to fully understand the long-term implications and do what is best for you and your family.

See more about your pension options


Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.