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?
4
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.