Transferring your pension – is it worth it?

Dec 8, 2021
Understand the potential pitfalls of transferring your pension and check out our new video on transfers.

If money is tight, but you’ve saved a fair amount into a defined benefit pension, it’s understandable to want to get your hands on that money now! And if you’re 55 or over, currently you’re legally allowed.

 But wait…it’s tempting, but is it really that sensible? Read on and decide for yourself.

  • The main advantage of your defined benefit pension is that it will pay you a regular income until you die - as well as a regular income to a surviving spouse or dependant. If you give this up now, you’re swapping a guaranteed income for life, for money that could run out surprisingly quickly, leaving you with nothing.  
  • A single person needs roughly £20,000 a year for a moderate standard of living in retirement*. So, say the transfer value was £200,000, although it sounds like a lot, realistically it would only last about 10 years, and that’s without any luxuries.
  • And remember only the first 25% is tax free, so you’ll have to pay tax on the remaining 75%.
  • By law you may have to prove you’ve taken professional financial advice before you transfer your pension, if its value is over £30,000. So, you should take the cost of good, independent financial advice into account as well.
  • If your money runs out, the State Pension is unlikely to be enough to live on comfortably. Full entitlement for a single person is only about half what you’d need for a moderate standard of living.

 On the other hand, transferring from your pension might not be a bad idea:

  • If you have enough money from other sources to fund a good, guaranteed retirement lifestyle
  • In exceptional circumstances like extreme ill-health, transferring your defined benefit pension may mean you can leave a larger amount of money behind in the event of your death. 

So think very carefully before you take the plunge. It may sound like a great idea for now… but what happens a few years down the line?

It’s wise to speak to an FCA-regulated, independent adviser before making important financial decisions. Find details of regulated advisers in your area at unbiased.co.uk.

Alternatively, Liverpool Victoria (LV) has been chosen as the official partner to give RPS members access to financial advice. LV can be contacted on 0800 023 4187.  This service is authorised and regulated by the Financial Conduct Authority.

 We also have a new video on this website which explains these tricky transfer pros and cons.  You can either watch it on this website via our online video library here, or in ‘Planning for retirement, ‘Options for DB members’, Transferring your pension.

And you can find more written information on your retirement options in the ‘Planning for retirement’ section of this member website.

 * Figures taken from retirementlivingstandards.org.uk