Why Consider Taking a Transfer Value Out of a Final Salary Pension Scheme

Why Consider Taking a Transfer Value Out of a Final Salary Pension Scheme

There has been a surge in the number of over 55’s cashing in all or part of their final salary pension scheme, due to the so-called “Brexit bonus”, with cash transfer valuations hitting record highs. According to the Financial Times, in some cases, cash sums equivalent to more than 30 times the projected annual income on retirement have been offered to pension scheme members.

Why withdraw the money?

There are many reasons why you may wish to transfer out of your pension scheme, perhaps you:

Have no spouse or dependants, and wish to transfer the money out (typically getting higher lump sum death benefits under a transfer arrangement than the main scheme will provide) to spend now or to buy an enhanced pension scheme.

  • Already have other pension arrangements in place which you feel guarantee you a secure financial future, meaning you can use this pension pot for whatever you wish.
  • Are worried about your current pension scheme going under (think: the recent BHS pensions scandal) and prefer to have full control over your money.
  • Again, want more control over your financial future and wish to self-invest your pension benefits (such as in property, or stocks and shares).
  • Are in poor health or have a limited life expectancy, and wish to simply enjoy the money while you still can.


The beauty of taking a transfer out of your final salary pension scheme is the flexibility it typically can offer. For example:

You can take the whole lot out (note that the first 25% of the pension value that is withdrawn is free from tax), or take a smaller sum, drawing an income as and when needed.

You can also “mix and match” pensions in various ways to suit your own unique financial needs.

In some cases, where there is a need for an increased tax free cash figure, you are able to take out a higher tax free cash sum than the scheme rules allow. (Note that this will result in an overall reduction in the fund value of course).

Are there any downsides?

Transferring in all or part of your pension scheme shouldn’t be seen as quick way to get a lump sum cash injection.

There are important things you need to consider. Simply transferring out of your final salary pension scheme and giving up guaranteed, secure benefits without being aware of the possible financial implications, could be dangerous.

You need to think about what the impact of taking all or some of your pension pot now will have on your financial future and lifestyle if you haven’t planned carefully.

Watch out for IHT

There may also be Inheritance Tax implications that may influence how much tax any dependants have to pay when you die.

When you die, any remaining cash or investments from the money that came from your pension pot will count as part of your estate for Inheritance Tax (IHT) purposes.

You may decide to leave your pension fund value to your spouse, children, grandchildren or other beneficiaries as this amount will not typically attract IHT.

Further tax implications

If you cash in more £10,000 or more of your pension pot, under Money Purchase Annual Allowance (or MPAA) rules, the annual amount of defined contribution pension savings on which tax relief available is reduced from £40,000 to £10,000.

So, if you want to continue building up your pension pot, you may wish to rethink this option.

Making an informed decision about your financial future

This is just a flavour of some of the considerations that you need to look at if you are looking to transfer out some (or all) of your final salary pension scheme. It is important that all the pros and cons are weighed up including any tax implications, your financial future, and any inheritance amounts you wish to leave to your family.

While, by law, you can transfer out any amount less than £30,000 without regulated advice, we recommend that you seek independent help and guidance, no matter what the sum.

Understanding the possible effects of transferring a cash sum out of your pension scheme will allow you to make an informed decision as to whether taking a transfer value out of a final salary pension scheme is the most appropriate solution for you.

Please note that none of the included content should be viewed as a personal recommendation. If you would like more information on any of the topics provided then please contact us here.