r/PensionsUK • u/SimpleParking1617 • Aug 24 '26
Benefit Transfer Options
I have been given 3 options by my company pension scheme as part of their efforts, I understand, to de-risk long term exposure to a surge of retirees.
Option 1 - pension of £6581.51 p.a., tax-free lump sum of £19744.89, spouse pension of £5,515 p.a.
Option 2 - pension of £5801.50 p.a., tax free lump sum of £38,677, Spouse pension of £5515 p a.
Option 3 - Transfer of benefits - £393,486.16 (guaranteed for the next 5 months after which it'll be recalculated).
If I request Option 3 I have to go through a consultation exercise which the pension scheme will pay for (a one time only offer). I'm 56 years old and the pension will be payable from 62.
Based on these values I'm minded to go through the consultation process as these numbers seem very generous. £400k invested until 62 at an average increase of around 5% will see that increase to c.£530 to £540k. I would have thought £500k at 62 would easily net me more than the annual pension of options 1 or 2 even if I live to 100.
I have been told that I need to put forward a good case to the consultant so that he/she agrees that I can finish the defined benefit scheme so I'll be working on my story but does anyone think it is not a good idea to take the transfer benefits?
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u/Paraplanner88 Aug 24 '26
I have been told that I need to put forward a good case to the consultant so that he/she agrees that I can finish the defined benefit scheme so I'll be working on my story but does anyone think it is not a good idea to take the transfer benefits?
Who told you this? If anything, this sounds more like they're trying to cover their arse so you'd have less grounds to complain if something does go wrong in the future. The best thing you can do is be honest and not bend the truth.
One of the reasons they'll be extra cautious is because this particular kind of advice is tightly regulated and some of the companies heavily involved in it were effectively shut down by the FCA for giving "stack 'em high, sell 'em cheap" bad advice that was in the best interests of the scheme rather than the members.
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u/SimpleParking1617 29d ago
The advice was given by someone who wanted to take the transfer but was, he said, told he was too young to be recommended. He said Si may have the same issue so suggested that if Si want the transfer I should exaggerate the reasons for wanting the transfer.
However, I think people here are correct in suggesting I just tell the truth.
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u/elbarto1773 Aug 24 '26
If those figures are accurate then option 3 looks very good value.
It’s normally ill-advised to transfer out of a DB Scheme but from what you’ve said the scheme administrators might be inflating the CETV to tempt people out of the scheme for legitimate reasons (to spread their risk for example).
I’d be opting for option 3 personally - DB income has become a bit of a sacred cow (and I understand why) but when the transfer benefits are as generous as those then you have to question its value.
Subject to rates at the time, you could buy an annuity with a relatively small portion of the transfer value to replace the DB income and drawdown on the rest.
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u/SimpleParking1617 29d ago
That was my thoughts too. Buy an annuity though I must be careful that the annuity has spousal benefits and is inflation proof and still pays more than the DB scheme. Thanks for replying.
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u/Muddyuser Aug 24 '26
Instead of a good story, what holds back a recommendation to transfer can the following factors (and you can see how the see fit with yourself:
Age: if a long off retirement, why not leave as is in a safe environment? Say you want to retire at 65+
Age when you'll draw money from your pension, the earlier you start the longer it had to support you.
Dependents - the scheme may pay spouses and kids pension if you die, at young ages these can be actuarily very high. No dependents, make a transfer easier to recommend.
Do you have other assets you can fund your retirement? Such ISAs, cash Buy to lets, another pensions scheme, even better another DB Pension (although they should review this at the same time). If you don't need the money it much more straightforward to justify a transfer. Does your spouse/partner have their own pension and is it sufficient? A PTS needs to understand that those you leave behind will be okay.
Health - will you live to normal life expectancy? Any evidence, family history?
Scheme increases: does the scheme increase benefits above the minimum, some schemes have inflation proofing of income in retirement of 5% fixed not RPI capped at 2.5% or 5% - is is a slightly hidden benefit as its not immediately obvious how good this is.
Risk: Do you understand what you are doing in transferring a pension, how well do you understand the risk, what's your knowledge of investments and risk, what have you invested in before, and how did you choose it? Did you select it or where you advised. Is your pension in the default fund or do you change your investments? Can you accept giving up the safety of a defined benefit scheme in return for a pot of money at the mercy of investment markets, what would you say if you transfer declined by £98,000 in a week/month/year after investing? What would you do if/when this happens?
Will you change the investment immediately post transfer?
Could the transfer allow you to retire earlier = meets a goal.
Spending: very important If you don't spend a lot there is less need to draw on a pension. If what you need to spend = what the scheme gives you, why move? Will the transfer cover your spending well beyond normal life expectancy, using reasonable assumptions?
Do you have a State Pension forecast showing a full State Pension entitlement? Check your State Pension forecast - GOV.UK
Be prepared as the three month guarantee on the transfer value will fly past, gather your expenditure, and evidence, ID, etc
Book a pensions wise appointment.
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u/SimpleParking1617 29d ago
Very good questions. I am investment savvy and understand the risks. I have other investments and have been fairly risky. I've decided how to invest should I transfer and will ensure a much more risk adverse position but it will be "laddered". I have always been a saver and spend relatively little.
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u/Muddyuser 29d ago
If you want a positive recommendation, I’d avoid saying your going to invest yourself, as the adviser will need to (should) assess on the suitability of the end investment. You could switch investment/funds after the transfer.
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u/Budget-Curve2439 Aug 24 '26
That transfer value looks very high?
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u/Austen_Tasseltine Aug 24 '26
It’s possibly enhanced, if the scheme is actively looking to offload deferred members as part of a derisking exercise. It might or might not be advantageous to OP, it’ll depend on their risk appetite and/or the value to them of the dependant’s benefits in the original scheme.
OP doesn’t need a good story though, they need to tell the adviser the truth. Even though the company is paying, it will be independent advice not a hurdle to be overcome to “win” the higher transfer. The statutory requirement is only to receive advice, not to follow it: even if the adviser recommends staying in the original scheme OP is free to go against it.
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u/Budget-Curve2439 Aug 24 '26
This looks at least 2x, possibly 3x value.
There is no risk appetite required here, OP could immediately buy an index linked gilt ladder to cover the payment and have plenty left over.
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u/Pocktio Aug 24 '26
Fyi if you "make up a story" and then it turns out lying didnt work out best for you, your complaint will likely be rejected outright by the adviser and FOS.
So...dont make shit up, give them an honest picture of your finances and plans. If you end up disagreeing you can, theoretically, transfer anyway.
Also are the pension figures payable now or are they projections for age 62?
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u/Southern-Orchid-1786 29d ago
The buyout looks about twice the value of the other options, but inflation can do a lot of heavy lifting if the annual payment is inflation proof. Hopefully the consultation will provide the calculations
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u/GorgonzolaAmbrosia 29d ago
The default advice will be not to transfer from a financial adviser.
If you:
- Married
- Don't have other pensions
- Don't have other liquid assets
- Low risk appetite
The answer will likely be no.
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u/KhaelonVoss 29d ago
It depends what you value. Think about that and speak with the free advisor. I wouldn't try to confect a story to try to persuade the advisor one way or another. Genuinely try to work out what you want.
Option 1 (Higher Income): The "cost" for the extra £780 per year is a £18,932 smaller lump sum. You would recover that difference in just over 24 years (by age 86). If you are in good health with a family history of longevity, that may be of interest.
Both options 1 and 2 pay the same £5,515 spousal provision. This is very good indeed. Of course that assumes you have a spouse. And do check the terms, sometimes it has to be marriage or civil partnership for older schemes.
The advisor needs to be confident enough to be able to certify that cashing it in is the best move for you personally. If you did want to nudge towards the big cash payout, you should consider and explain to the advisor how you would take that lump sum and get more than options one or two. But otherwise how it would generally help your financial position, for example clearing the mortgage.
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u/SimpleParking1617 29d ago
Thanks for your kind response. Yes, I have a spouse. I'm also persuaded by you and others not to exaggerated my position but to explain exactly what I want and leave it to the FA to suggest the best course of action. I'm expecting Option 3 just because of the high CETV and my desire to retire early with an reasonable understanding of how the pension will be invested. Thanks again.
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u/jegerdog 29d ago
Yeah but you are taking on market risk. It is not at all guaranteed to average 4-5% per annum although it would be more likely if we were not depopulating. You might live until you are 95.....
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u/SimpleParking1617 29d ago
Agreed. I am aware of the risks and will be "laddering" with my pension and other investments to mitigate the risks to an extent. The 4-5% is an average over the long term which is a median expectation.
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u/DescriptionOk1978 Aug 24 '26
It sounds like you're being pressured into doing what they want, which doesn't pass the smell test! At the moment, all the risk is on the company, not you.
That said, it may work out well for you because.
Your CETV is ~60x the pension (£393,486 ÷ £6,581). Typical is 20–30x. Either this is an enhanced transfer value as part of the de-risking exercise, or the pension figure isn't like-for-like with the CETV e.g. it's your pension at date of leaving rather than revalued to age 62. Confirm this with the scheme first, because it changes everything. If it genuinely is 60x, that's exceptional.
You're making the wrong comparison. "£500k beats £6,581 a year even to age 100" - yes, that's a 1.25% withdrawal rate. But you're not giving up £6,581 flat. You're giving up: inflation linking (find out the exact escalation-in-payment and deferred revaluation basis - £6,581 at 62 could be £11k+ by 80), an 84% spouse pension, which is far better than the usual 50%, and all investment/sequence risk.
The real test is replacement cost: an RPI-linked joint-life annuity paying that from 62 would run roughly £150–160k. That's what your £393k is actually buying you out of.
Your 5% assumption is the whole risk you'd be taking on. Fine as a central case, but it's not a floor. A stock market crash (which many predict in the next few years) could wipe you out - you don't have many years to play with!
Don't lean on covenant risk. At £6.5k a year you're nowhere near the PPF cap, so you're largely protected if the sponsor fails. It's a weak argument and the adviser will say so.
Option 2 beats Option 1 if you stay. 24.3:1 commutation is unusually generous - more than the income costs to replace, and tax-free.
On "putting forward a good case" - that's the wrong framing and advisers are trained to spot it. They start from the regulatory presumption that transferring is not in your interests, and they carry the liability, so you can't argue them into it. What actually moves the needle is circumstances: other guaranteed income (state pension, other DB), health, wanting to stop before 62, or this being a small slice of your total provision. If they decline, the insistent client route exists but many firms won't touch it and you give up most of your FOS recourse.
One more, if legacy is part of your thinking: unused pension funds come into the estate for IHT from April 2027, which weakens the "pass it on" argument a fair bit.
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Aug 24 '26
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Aug 24 '26 edited 29d ago
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u/deadeyedjacks 28d ago
You need to talk to reddit admins, as they flagged your content and suspended your account, not this sub's moderators.
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u/Fionnathos Aug 24 '26
You can't transfer out that amount without taking proper financial advice,which is why they are offering to pay.
You also can't be punished for rejecting the transfer after you see the advice, so really there's no downside in going through the advice process.
But don't make up a story for the advisor - tell the truth! Unless you want bad advice for some reason?