Pensions: “I want to transfer my final salary scheme”. Really? Are you sure?


Over the past couple of weeks we’ve seen an increase in the number of people calling us to enquire about transferring their Final Salary pension into a SIPP (Self Invested Personal Pension).

Whilst there seems to be no particular reason for the increase in this type of enquiry, it did get us thinking. Why would someone want to transfer their Final Salary pension into a SIPP? Is there any benefit to doing so? Why do some people place so little value on their Final Salary pension?

“My pension is doing nothing”

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All of the people who contacted us, wanted to transfer into a SIPP, to access a wider range of investments. The preferred options were as diverse as property, woodland, and even livestock, which couldn’t have been held in a SIPP even if the transfer was a good idea, but that’s another story.

There seemed to be a number of reasons why the members of the Final Salary schemes were unhappy to simply leave their accrued benefits in the scheme until retirement.

Firstly, it was felt by some that by leaving the Final Salary scheme in situ it would not grow between now and retirement.

Secondly, there was a feeling that the member could make the money grow at a greater rate in a SIPP than it would in the Final Salary scheme. This view was especially popular amongst the people who wanted to invest in property.

Thirdly, there was a nervousness that the rules of the scheme would be changed between now and retirement; the alteration to how income in retirement is increased from RPI to CPI was cited by at least one person.

Finally, there was an unspoken feeling that leaving the Final Salary scheme in place was just too boring or unimaginative, and that surely it could be put to better use.

“So, is there any benefit to transferring a Final Salary scheme into a SIPP?”

Our view, one which is shared we would hope by most Independent Financial Advisers, and certainly the FSA (Financial Services Authority), is that it is almost never a good idea to transfer benefits from a Final Salary scheme into a Money Purchase arrangement, such as a SIPP, where the return and therefore the income in retirement is dependent upon investment performance.

Why is this the case?

Firstly, the income you get in retirement will be greater than that which you were entitled to at the date of leaving your employment. It is revalued each year, in an attempt to maintain its buying power between leaving and retirement.

Secondly, the income from a Final Salary scheme is guaranteed, it can’t be taken away from you. Whereas assets you buy in a SIPP can clearly rise and fall in value and the level of income available is heavily dependent on external factors, which may or may not work in your favour.

Finally, the income in retirement from a Final Salary scheme will generally rise in line with inflation. Many of us will live 20, 30 even 40 years in retirement, having an income protected against the ravages of inflation is a massive benefit, which makes it expensive, just ask anyone looking at buying an inflation linked Annuity!

Yes, it might seem boring to leave the money in the Final Salary scheme and yes, you might feel that you have some magical powers of investment which will allow you to improve on the existing scheme but take step back and crunch the numbers, we’d make a large bet that beating the guaranteed, inflation linked return from the Final Salary scheme is almost impossible.

“But I know an adviser who say’s this is a good idea”

We are aware of instances where people have transferred out of Final Salary pensions into Personal Pensions or SIPPs; indeed we are helping two such people with complaints against their advisers.

If a Financial Adviser recommends you transfer out of a Final Salary scheme we’d suggest you get a second or even third opinion. These are the Rolls Royce of pensions, which people long to become members of and for which people have gone on strike to defend.

As much as we think SIPPs allow more investment flexibility, which can really get people engaged with their retirement planning, if you are thinking of transferring your Final Salary pension, our message is simple:

Don’t!  If you do, we firmly believe you will live to regret it.

Our team of Independent Financial Advisers in Nottingham  are experienced in developing retirement income strategies for clients the length and breadth of the UK. If you are approaching retirement and would like advice on your options call one of our IFAs today on 0115 933 8433, alternatively enquire online or email