A pension transfer from a salary-related (defined benefit) pension scheme means giving up your benefits in the scheme in return for a cash value, which is invested in another pension scheme.

This may be a pension scheme with another employer, a personal or stakeholder pension, or a buy-out contract.

Salary-related pension transfers are complicated, and it is difficult to make suitable decisions without professional advice, even when you have all the relevant information.

If you decide to transfer out, we will convert the benefits you’ve built up into a cash sum. This is called a “transfer value” (also known as a “cash-equivalent transfer value” or CETV).

You must then invest this in a pension scheme with another employer, personal or stakeholder pension, or buy-out contract (also sometimes called a “section 32 contract”). Not all employer pension schemes, personal pensions, or buy-out contracts accept the transfers, so check first.

In most cases, you’re likely to be worse off if you transfer out of a defined benefit scheme, even if your employer gives you an incentive to leave the scheme. Before you go ahead, you should seek advice from a financial adviser. The Money Advice Service
Risks of transferring to a defined contribution scheme

Any potential advantages of transferring from a defined benefit pension scheme to a defined contribution one are often outweighed by the costs, risks and loss of benefits involved.

Your future pension income can’t be predicted with any certainty if you transfer to a defined contribution scheme, regardless of whether it’s run by your employer or it’s a personal or stakeholder pension. This is also true with some buy-out contracts.

With a personal or stakeholder pension, you’ll give up any benefits you had in the former employer’s scheme.

Risks of staying in your defined benefit scheme

Staying in a defined benefit pension scheme is not risk-free.

If your employer is still in business, it usually has to make sure the scheme has enough funds to provide the full entitlement to members. But some employers sponsoring these schemes have gone bust, leaving insufficient money to pay the pensions promised.

If an employer is going out of business without enough funds in its pension scheme, the Pension Protection Fund may be able provide compensation, but it may not amount to the full amount of the pension you’ve accumulated.