Defined Benefit Transfer - Summary (Estimated Reading Time - 32 mins 13 secs)

The Defined Benefit Pension Definition

A defined benefit (DB Pension), also known as a final salary pension, is a United Kingdom pension scheme where your pension is calculated based on how many years you have worked for your employer and the salary you earned.

The defined benefit pension is a preferred choice because it provides greater income stability and additional benefits for its participants. Many US citizens ask Cameron James about how to carry out a UK pension transfer to the USA, so we thought we would discuss it in this article.

The DB pension scheme offers you a fixed income amount which will last until the time of death. Consequently, you are limited to taking a fixed annual pension income and do not have the flexibility of withdrawing pension income.

However, you are allowed to take a tax-free amount of as much as 25% of your pension value as a lump sum, and the remaining 75% of withdrawals will be arranged by the pension provider and taxed at your marginal tax rate. In most cases, the remaining 75% will be calculated at a GAR (Guaranteed Annuity Rate) to give the holders a guaranteed lifetime income until the time of their death.

US residents tend to transfer their pension into an International SIPP as it offers greater flexibility and benefits, which we have also discussed in a separate dedicated article. However, if you wish to learn more about International SIPPs, we suggest reading our International SIPP for US Residents article.

Retirement Plans in USA

Workers are experiencing increased mobility in an ever globalising market. As a result, Americans living abroad are sometimes required to enroll in a pension scheme in another country, even if they are only in that country for a short time.

Workplace pension schemes such as the final salary pension scheme in the UKare a type of foreign pension scheme commonly encountered by Americans working for a UK-based company.

Many of our clients based in the US have held a UK DB pension, for example our New York clients working in financial services, and our Texas based clients working in the Oil & Energy sector. While they may have only held a UK DB pension for a few years, it could still have grown to become a significant asset for them which they wish to have managed effectively with greater control.

Dual Citizenship UK USA

US citizens receiving UK pensions such as a final salary pension or defined benefit pension scheme is a common occurrence for US citizens working for UK-based companies. Being both a UK and US citizen can offer some significant benefits, including easy travel to both nations and the ability to work in both countries.

However, becoming a dual citizen of the UK and the US can have substantial tax consequences, relating to any assets you own (including ISA's), UK property that has been sold or re-mortgaged, having an income above $100,000, and of course, the pension received too.

Unfortunately, not everyone with dual citizenship is aware of this responsibility. They only realise when they receive a bill with an enormous amount of tax they have to pay to the IRS. This is why, if you are a US citizen receiving a UK pension, you must seek advice from an SEC and FCA regulated financial advisor. You should be aware of your responsibilities, and we advise you to contact a qualified tax advisor for your US state.

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Is the 25% Pension Commencement Lump Sum tax-free in the US?

This is a question Cameron James is often asked by our US resident clients receiving a UK pension. Despite numerous IFAs in the USA telling their clients that their UK 25% PCLS is tax-free in the US, there is a large raft of information contrary to this.

While it would be easier to tell clients that it is tax-free, which will likely increase their eagerness to complete a transfer with Cameron James, we prefer to be transparent. According to the UK & US tax treaty, most IFAs in the USA will say that the 25% PCLS is tax-free for their clients according to the UK & US tax treaty.

Cameron James will explain to you why the UK & US tax treaty does not apply to the 25% PCLS tax-free rule. Henceforth, if you are withdrawing a 25% lump sum of your DB pension in the US, the US government will tax your lump-sum payment from your DB pension.

Do Dual Citizens Pay Taxes in Both Countries?

US citizens with UK pensions often ask Cameron James this question. Each source of revenue and profits you receive from the UK is subject to US taxation, including pensions. However, several exclusions and options exist to decrease the pension tax burden under the US UK tax treaty pension.

Unless you affirmatively choose to implement the treaty, domestic U.S. tax law stands by default. However, when you use the benefits of a treaty, it takes precedence over domestic law. If you are a US citizen with UK pension, read our discussion regarding the US UK tax treaty pension here.

How does the Defined Benefit Pension Plan work?

In the defined benefit pension scheme, the Board of Trustees or the pension provider are responsible for all elements of the pension and normally run a final salary pension scheme on behalf of the company.

This involves calculating the value of the pension and paying out the pension based on the valuation and arrangement. The Scheme Administrator who answers to the Trustees' Board, typically manages the scheme on a day-to-day basis.

Despite the desirable benefits of the guaranteed income a DB provides, DB schemes have continually decreased in popularity over the years, primarily due to the cost to employers.

The most common Scheme Administrators that we complete pension transfers for our US Resident clients from are:

  • Willis Tower Watson
  • AON
  • Capita
  • BT Pension Scheme
  • Essar Oil
  • Rothesay
  • Prudential
  • Fidelity
  • Barnet Waddingham
  • Premiers Company
  • XPS Administration
  • Nestlé Pensions
  • Phillips
  • BP UK Pensions and Benefits
  • My MNOPF Pension
  • Cartwright Group
  • Premier Companies
  • Mercer Limited

How much can you contribute to a defined benefit plan? Contributions to a final salary pension may be substantially limited in comparison to other pension schemes. The amount you can contribute to a defined benefit pension scheme is determined by your age, level of income, and the number of years you have worked in the company.

Your defined benefit pension is typically calculated using either a career average salary formula or a final salary formula.

The calculation under the career average formula or career average revalued earnings (CARE) will often provide you with an income in retirement based on a percentage of your average earnings after adjusting for inflation throughout your participation in the pension scheme. In short, your pension will be determined by your monthly earnings throughout your employment.

The final salary formula is calculated using your gross salary from your final year of working, or the last year before retirement age, whichever is earliest, hence the final salary pension. In terms of the final salary formula, a defined benefit pension scheme typically provides an income in retirement based on a percentage of your "final pay".

It is essential to understand that the term "final salary" does not mean that your final salary equals the pension income you earn when you retire and begin receiving benefits from the program. Read our in-depth article regarding the formulas of defined benefit pension calculation here.

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Advantages of Final Salary Pension

As mentioned above, a defined benefit pension scheme offers you valuable safeguarded benefits for your retirement. Apart from the DB benefits, the defined benefit pension scheme also includes several other advantages.

Guaranteed Monthly Income (Annuity)

A major benefit of a private or personal pension plan is that you will receive a fixed amount of income at the time of your retirement, an amount that has been pre-established by your pension provider. In terms of DB benefits, this is called the Guaranteed Annuity Rate (GAR).

As the name implies, a guaranteed annuity rate guarantees that your retirement income will be a particular proportion of the accumulated capital. Guaranteed rates can be beneficial. If your pension provider provides one, you may receive a substantially higher income than if you purchased an annuity elsewhere.

Certain schemes offer additional DB annuity benefits, such as a combined life annuity (to cover your spouse at the time of your death) or one that is index-linked with inflation. If prices decrease, your retirement income will decline as well. However, whether your income rises or falls, its purchasing power will remain unchanged.

Another type of annuity is a flexible retirement annuity. A flexible retirement annuity is a type of annuity that offers regular retirement income for life, or for a specified length of time, or until the time of your death. However, it is different compared to the regular annuity.

However, if you are looking for more flexibility in terms of the annuity, then we suggest you transfer your DB pension into an International SIPP. An international SIPP provides you with more flexibility in terms of access to your annuity. In other words, you can determine the amount of annuity yourself. Checkout our International SIPP page here to learn more about it.

Reduced Risk & Guaranteed Growth (Linked to Inflation)

Index-linked annuities, like traditional annuities, are intended to provide you with a monthly income throughout retirement. Index-linked annuities have the added benefit of ensuring your income rises in lockstep with inflation each year, and ensuring that your purchasing power stays level with the cost of living.

Your salary is often tied to the Retail Prices Index (RPI), one of the government's inflation measurements. One disadvantage of an index-linked annuity is that your monthly income is generally smaller than it would have been if your pension provider chose a level or fixed annuity for your defined benefit pension.

However, for a number of our clients, it may be suitable to transfer out and grow their DB asset and achieve returns that are higher than inflation. For example, the average return of the S&P 500 over the past 10 years (including the CV19 pandemic) is 13.6% annually (Business Insider, 2021).

This will depend on your attitude to risk though, and is not suitable for all DB pension holders who may need to rely almost exclusively on their DB pension capital in retirement and cannot afford to take any risks with the money.

Death Benefits

What happens to the principal of an annuity when you die? What happens to an annuity when you die is determined by the kind of annuity and the payment arrangement that the pension provider planned for you. Most commonly, your pension provider will arrange for payments to be paid to your spouse or other annuity beneficiaries for years after your death.

If you die before you retire, your spouse will be paid a lump sum based on your final salary, usually 2-4 times this amount. It will be a tax-free lump sum if paid before the age of 75 and taxable after 75.

If you die after you retire and you have started receiving a pension income from your DB scheme, then typically, your spouse will receive a reduced yearly pension income of up to 50%. Scheme rules differ, and therefore, the amount your spouse can receive upon your death can vary.

However, there are regulations and calculations regarding the beneficiaries themselves. The HMRC specifically regulates the term “beneficiaries” and how much they will receive at the time of your death, before or after you receive your pension.

One of the key issues with this 50% rule is that ‘partners’ are not typically recognised as your spouse, so the annuity may not pass to anyone if you are single or divorced. In some instances, 25% can be paid to your children, but this is usually at the trustees’ discretion.

The practicalities of this are complex. Few clients wish for their children who may be under the age of 18, to have to contact your UK pension scheme(s), which they may not even know exist, to state their claim to be paid a proportion of your annuity.

Completing a transfer to an International SIPP ensures your spouse, partner, children, or any other named beneficiaries will receive 100% of the value of your pension upon your death. No complications. The money will remain with your family.

Understanding the full defined benefit death benefits helps you to make a comprehensive decision. You can check out our article discussing the death benefits of defined benefit pension schemes here for further information.

25% Tax-Free Lump-Sum

Another of the DB benefits is that you can typically take up to 25% of your defined benefit pension as a lump-sum. The first 25% of your withdrawn lump-sum pension will be tax-free. The remaining 75% will be added to the rest of your income and taxed in the normal way as an income tax.

Unlike with defined contributions, it can be a complicated process to calculate the lump-sum that can be withdrawn in defined benefits pension schemes.. It is based on the scheme's 'commutation factor,' which measures how much of a lump payment you receive for every £1 in the income you give up.

(Read our article on 25% Tax-free lump sums/ PCLS here)

Minimum Age Withdrawals

In defined benefit plans, you can withdraw from your Normal Retirement Age (NRA), typically 60, 65 or 67 for most UK DB Schemes. However, there are some situations in which you may be eligible to draw money from your pension before your NRA, such as if you are in bad health or work in a profession where your general retirement age is earlier than the typical worker. Professional athletes is one of the professions that lies in this category, where they typically retire at the age of 40.

This is unlike International SIPPs, which are defined contribution pension schemes, which means you can access your 25% tax-free amount and remaining taxed 75% amount from age 55. Again, this is a key advantage of transferring your DB scheme to an International SIPP.

PPF Protected

The UK government established the Pension Protection Fund (PPF) to protect members' benefits. If you are a member of a defined benefit pension scheme and your company goes bankrupt, leaving the scheme with insufficient funds to pay the money due, the PPF may compensate you.

If the company declares bankruptcy during your retirement, the Pension Protection Fund will generally provide up to 100% compensation, which means you should not lose any of your pension.

If the company goes bankrupt before you retire, or if you choose to retire early, the Pension Protection Fund will compensate you with 90% of your pension. Your compensation will increase in line with inflation every year until you meet the retirement age specified in your scheme.

Disadvantages of Defined Benefit Plans

This is influenced by many factors, including the disadvantages of DB pension. We will go through the DB pension drawbacks that you may consider when deciding whether to keep or transfer your DB pension.

Less Flexibility

While the advantages of Final Salary schemes might be valuable, they are also quite inflexible and restrictive in nature. For example, you cannot modify the ongoing annual income (annuity) you will receive from your DB scheme once it begins. So if your annuity is £10,000, you will be paid £10,000 pa come rain or shine. On the other hand, some clients enjoy the security of knowing exactly how much they will receive each year and not being able to adjust it.

However, most of our clients prefer to control their pension income and decide how and when they need or wish to take income from their pension. For example, they may wish to take £50,000 in year 1, and then £0 in years 2-5.

Frequently, though, our clients already have other sources of wealth and wish to take no income at all from their DB plan. They allow it to grow tax-free to pass on to their beneficiaries or to enable them to make larger withdrawals later in life once they have exhausted their other cash reserves.

There are two key advantages of deferring income from your DB pension by transferring to an International SIPP. Firstly, UK pension wrappers grow free of capital gains tax, meaning you can continue compounding your growth without additional taxes, unlike your direct stock holdings and savings accounts on which you pay capital gains tax. As such, it is more tax-efficient to draw down on your stocks and savings accounts before your pension asset.

Secondly, it can help you pay less income tax on your pension withdrawals. This is because as you get older, your annual income is likely to decrease as you retire or complete less consultancy work, dropping you into the lower tax bands in your country of residency, currently between 10%-37% in the USA.

I.e., it may be far more tax-efficient to take income from your UK pension at age 70 than it would be at age 60, when you may still be working and in a higher tax band.

By transferring your defined benefit pension to an International SIPP, you will benefit from the new pension scheme freedoms that provide you with the above flexibility on timing your withdrawals.

Lower Death Benefits

One of the considerations of choosing a pension scheme is the inheritance and espousal features. Ideally, you should try to ensure your family get as much of your pension capital as possible in the event of your death. As mentioned above, in a defined benefit pension scheme, your spouse will get at least 50% of your unreduced pension monthly.

While this provides your spouse with a guaranteed income, this is comparatively low, as the SIPP or DC pension schemes allow you to pass on 100% of the pension to your beneficiaries.

Furthermore, the death benefits of a SIPP or DC pension scheme will flow not only to your spouse, but also to your kids and future generations. As long as there is money left in your pension pot, it will be distributed to your heirs.

For example, if you hold a £1M DB pension and have a promised annuity of £50K pa in retirement, and you were to pass away then your spouse would typically receive 50% of that annuity (£25K). In the event of their death though, this 50% cannot be passed on to anyone else.

Effectively meaning, the pension benefits will cease in the event of both of your deaths. As mentioned previously, there are instances where children of other dependents could apply to the UK Scheme, but it is not simple and typically the income is not guaranteed.

By completing an International SIPP Transfer, if you were to pass away then 100% of the value of the pension would pass to your spouse or named beneficiary. If your spouse were to subsequently pass away, 100% of the pension value would then pass into their named beneficiaries, likely your children. As such, an International SIPP provides far greater protection when it comes to succession planning for your family.

Health Issues

Defined benefit pension schemes operate by considering the health risks of its members, and those who live the longest are subsidized by those who live the shortest. For example, if you start drawing a pension at 65 and die at 70, you would not have earned as much out of the pension scheme as someone who lives far into their nineties.

If you believe you may have a lower than normal life expectancy, you should consider transferring out of your defined benefit pension. Generally, the value you are offered represents the average life expectancy.

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Cashing in Your DB Pension

Many US and expat clients have the common question: “Can I cash in my DB pension?”. In short, the answer is yes, you have the option to cash in your final salary pension scheme and exchange it with your preferred pension scheme.

DB Transfer Abroad

Transferring your UK final salary pension to the US is not a straightforward process. It requires assistance from a regulated financial advisor and thorough research into your personal circumstances. Especially when your DB pension value is above £30,000, by law, you are required to take advice from an FCA regulated financial advisor before you can transfer your DB pension abroad.

Transferring your UK DB or UK SIPP pension into a US retirement plan is feasible, but only under specific conditions. You will not be allowed to transfer your UK pension to US into a 401k plan under the current US law.

The Cash Equivalent Transfer Value (CETV)

The process of cashing in your defined benefit pension involves the valuation of your pension pot. In exchange, you will get a final salary pension scheme transfer value equal to your pension benefits, called a Cash Equivalent Transfer Value (CETV). The CETV is necessary when you seek a defined benefit pension transfer from a defined benefit pension to a defined contribution or SIPP pension scheme.

The CETV is the value of your pension pot. Theoretically, the presented amount of the CETV is shown as a lump sum. However, normally, you will not be able to withdraw it as a lump sum. Instead, you can exchange it with other pension schemes with the equivalent or even greater benefits offered in defined contribution or SIPP pension schemes.

What is the CETV value of a pension? Calculating your final salary pension scheme transfer value or your CETV is a complicated procedure that considers various elements. The calculation can vary across different schemes; usually, it combines a degree of factors, including your final salary or average career salary, the number of years you worked for the company, an accrual rate, and the number of contributions if the scheme allows them.

These defined benefit pension calculation aspects include your age and the retirement age of your scheme, average life expectancy, living costs, marital status, pension transfer value index, and how much your employer wants you to switch. You can read more about CETV calculation here to find out your final salary pension scheme transfer value.

Can I Transfer A Final Salary Pension?

Public sectors saved through a corporate pension, depending on how long they had worked for the company as well as how much they were paid. Because the amount of pension they would receive was guaranteed by the terms of the pension scheme, they were referred to as defined benefit pensions.

Despite all the benefits of a defined benefit pension, there are some disadvantages to it too, including a lack of control regarding how and when you collect your pension. As a result, some people consider doing a defined benefit pension transfer to a defined contribution or SIPP scheme.

However, due to the obvious compelling advantages of defined benefit pensions, the Financial Conduct Authority (FCA) advises financial advisers to begin with the presumption that it would not be in the people’s best interest to transfer their defined benefit pension benefits to a DC or SIPP scheme.

Apart from that, keep in mind that the FCA regulated defined benefit pension transfer with a value above £30,000 will require advice and sign-off from an FCA-regulated financial adviser. This regulation is in place to protect you and ensure you understand every one of the upsides and downsides of transferring.

Even if the valuation of your plan is less than £30,000, it is always a good idea to take advice unless you are entirely certain that this is what you want to do, and you fully understand the implications.

Can I Transfer a Final Salary Pension into a SIPP?

US residents frequently ask if transferring a final salary scheme to a SIPP scheme is a wise idea or not. Defined benefit pension plans have been dubbed the “gold-plated” pension scheme due to their advantages. The answer to the question solely depends on your situation. It depends on the value of your current pension, your health condition, your dependents, your current liabilities, etc.

If you are staying in the United States and looking to do a defined benefit pension transfer, the SIPP scheme is the best option for you. Similar to 401k plans, a self-invested personal pension (SIPP) is a pension scheme where you can consolidate all your pension pots and keep it in the form of investments until you retire and begin receiving a retirement income.

A SIPP functions in a similar way to a traditional personal pension. The major difference is that with a SIPP, you have greater flexibility in terms of the investments you may purchase. There are broad discussions regarding SIPPs, such as the regulations, tax, and costs involved, the transfer process, and the type of investments, all of which we discuss in-depth in our International SIPP page.

Another type of SIPP is International SIPP. An International SIPP is a registered UK pension scheme designed specifically for non-UK citizens offering a diverse range of investment choices and flexible retirement benefit options, as well as lower costs.

Within an International SIPP, you can work together with your regulated financial adviser to determine the assets that best suit your specific circumstances (subject to certain criteria and HMRC regulations), as well as benefit from significant tax breaks and flexible retirement plan options.

Can I Transfer UK Defined Benefit Pension to QROPS?

A Qualifying Recognised Overseas Pension Scheme (QROPS) is an HMRC-approved pension scheme that allows British expatriates or foreign citizens who have worked in the UK for an extended amount of time to transfer their UK pensions overseas. The pension system must comply with UK tax legislation and reflect the standards of regulated pension systems in the UK.

Before proceeding with a defined benefit pension transfer, it is crucial to understand the processes required and get professional financial advice. Click here to read our full discussion regarding QROPS and whether it is a viable option for you to transfer your DB pension into a QROPS, especially if you are staying in the United States.

QROPS in USA

Despite its advantages, a defined benefit pension transfer to QROPS is not a practical solution for UK pension holders residing in the United States. Doing so would automatically trigger a 25% Overseas Transfer Charge (OTC) on the value of your DB pension (Gov.UK). Even if you wanted to transfer and pay the 25% charge (which would be terrible financial planning), no reputable QROPS provider would accept the business as it is clearly not in the client’s best interests.

If you are not resident in one of the 30 European Economic Area countries, you could transfer your pension money to QROPS without having to pay the Overseas Transfer Charge of 25%.

However, even as a US-connected person residing in the EEA we would still not advise this route, as the US government does not recognize QROPS transfers and would deem you to be taking income. Additionally, HMRC does not authorize any pension transfers to the US via QROPS. A transfer to an unrecognized foreign pension system is taxed at the rate of 55%. As per legislation, you will most likely be charged at least 40% of the value of the transfer.

If you are a resident in the EEA and are non-US connected, then you can utilise a QROPS to avoid a lifetime allowance. We suggest you read our full QROPS Explanation.

Pension Transfer Specialist / Expert

Giving up your DB pension is one of the most significant financial decisions you can make. When giving guidance, advisers must consider your entire family, financial situation, and the defined benefit pension calculation.

Your adviser should learn about your present financial situation and goals, as well as your retirement priorities and spending plans, other pensions, valuables and liabilities, health, and the health of your family, if necessary.

Your adviser will want to know how you feel about having a guaranteed income for life, and your approach to risk and the chance that your pension investment could decrease in value. If your pension pool is less than you expected, you should be ready to explain why you wish to forego a guaranteed income and how much you are willing to modify your lifestyle in retirement.

All of these are required and to make sure you fully understand the consequences of transferring your defined benefit pension. Besides, these processes will also help you to avoid pension scams.

A credible financial adviser will not suddenly agree with your decision to transfer your defined benefit pension. If you find such an adviser, then be wary and refuse any offer they might give you, especially if it looks too good to be true. Read our tips on how to avoid pension scams and how to find a credible financial adviser that can help you with your pension transfer.

Read our dedicated article on how to avoid Pension Scams.

How Long Does a Defined Benefit Pension Transfer Typically Take?

A defined benefit pension transfer typically takes 3-4 weeks through Cameron James from the point of submission to your UK scheme. Defined benefit pension transfers can take longer than defined contribution transfers. This is primarily due to the increased and thorough research involved in the process and the due diligence and compliance required by your UK ceding scheme.

Your UK pension provider, for example, must seek additional paperwork and confirm that you have acquired useful advice from an FCA-regulated advisor. But, again, all of these long processes are primarily constructed to protect you and your assets from pension scams.

Should I Transfer My Final Salary Pension?

You can give up and transfer your defined benefit pension scheme to a defined contribution, SIPP, or QROPS pension. Following the pension freedom rules of April 2015, people are allowed to draw down their DC pensions (SIPPs & QROPS) as they pleased, these DB to DC transfers have become increasingly popular. In any instance, the advice and transfer process must receive advice from an FCA regulated adviser.

This has changed thousands of people's pension schemes and significantly increased savings through people switching their defined benefit pensions to defined contribution, SIPP, or QROPS pension schemes.

Reasons to Transfer Your Final Salary Pension

As circumstances change, you may want to transfer your pension. Defined contribution and SIPP pension schemes have several advantages that may help you achieve your retirement goals. The following are the top three reasons why transferring your defined benefit pension may be a smart decision:

1. Significant Assets Outside of Final Salary Pension

One of the advantages of transferring your defined benefit pension is that you will have access to a broad choice of assets. With our ongoing advice, you will have complete control over how and where you wish to invest your money and may be able to outperform your DB pension.

This will depend on your risk profile. Most UK pension holders fall into three categories; conservative, balanced, and adventurous. If you are conservative, your money will be primarily placed in fixed interest assets with some equity exposure.

If you are balanced, this will have a higher weighting of equities and a lower weighting of fixed interest assets. And finally, if you are adventurous, you will have a larger part of the fund invested in equities with limited fixed interest holdings.

The above is a simplistic explanation in layman terms. Of course, your risk profile and portfolio management are more complex than this, but that is our job.

2. An Annuity is Not A Necessity

Transferring into a defined contribution or a SIPP pension offers you a wide range of investments, and you are not obliged to buy an annuity. An annuity is a form of retirement income plan that you can purchase using a portion or all of your pension fund. It provides a regular retirement income for life or for a specified length of time.

With a defined contribution or a SIPP plan, you can choose to avoid buying annuities and select other types of investments or assets that you think are more beneficial for you. This decision is also followed by advice from your regulated financial adviser. However, if you wish to know more about annuity, read our article here discussing annuity and why you should or should not buy it.

3. More Balanced/Adventurous Risk Profile

Individuals can achieve higher returns if they make well-timed, logical financial decisions throughout their life. Sometimes making no decision and leaving your money where it is can be the worst decision.

We get numerous clients who come to us worried about their capital losing value, but they are keeping it in a bank where the return isn’t even beating inflation, so they are losing money anyway! If you speak with an adviser, you can tailor an investment that meets your risk tolerance and achieves a reasonable return that is generating value in real terms over time.

To justify a defined benefit transfer, you must have a balanced approach to risk at least, or of higher risk tolerance. Your CETV is usually below the market value of what it would cost to buy the same annuity benefits on the market. Therefore, for the transfer to be a net financial benefit, you must grow your portfolio above the market value of the DB benefits. The only way to effectively grow is to be at least in the balanced risk category or higher.

Once outside the DB scheme and in a SIPP, you have a wide range of investment choices, so you can customize your portfolio to meet your needs. Therefore, with the right investment plan and sufficient risk, you can grow your investments above the value of the Defined Benefit plan.

The above points are why you should transfer your defined benefit pension scheme and why a transfer could be more suitable for you. However, it is important to remember that this decision must be followed with advice from a regulated financial adviser.

Reasons Not to Transfer Your Final Salary Pension

1. Your Final Salary Pension is Your Only Asset

A defined benefit pension transfer should typically not be done if the pension itself is your only retirement asset. Considering the risks associated with investing in a wide range of investments that the SIPP can offer, you may get back less than you originally invested if you made bad investments decisions.

That is why it is important to seek advice from a regulated financial advisor. UK law says that all regulated financial advisers must start the advising position from a defined benefit pension transfer that is not suitable for you.

2. You're a Conservative Investor

When you have a defined benefit pension scheme, you do not have to worry about the risks associated with the investment. However, your pension must still be paid by the pension provider, and the employer must carry the investment risk.

Contrary to the defined benefit pension, if you choose to transfer your final salary pension into a SIPP, you will be faced with a choice of investments. This could result in the value of your pension fluctuating. On the other hand, this might have a significant upside - your assets may rise significantly.

However, there is also the risk that your assets may underperform, and you will have to live on a considerably lower income. Your risk tolerance is, therefore, an essential factor to consider.

The above points are the reasons why you should not transfer your defined benefit. However, it is never wrong to seek advice from a regulated financial advisor such as Cameron James. With the right advice, you will be able to make the right choice.

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Defined Benefit vs. Defined Contribution Pension Scheme

Now that you are familiar with the final salary pension and the defined benefit pension scheme, it is important to understand the other type of pension, the defined contribution pension scheme.

Defined contribution pension schemes are workplace pension plans in which your personal and your employer's contributions are both invested, and the earnings are used to purchase a pension and/or additional benefits after retirement.

Pros and Cons of Defined Contribution Pension Schemes

You most likely had several employers while working in the UK. Perhaps you just worked for them for a few years. However, each company may have set up a workplace pension scheme for you.

For example, a customer may have £200k distributed over four prior jobs (£19k, £100k, £20k, and £61k). One of the advantages of a DC pension is that you may combine all of these pensions into one, easy-to-manage place by utilising the International SIPP.

Another advantage of an International SIPP is that it can save you duplicate costs. Each one of your UK pensions will have its own set of costs. Few individuals read page 34 of their employment contract when starting a new job that explains the details of their workplace pension.

However, these fees can be costly, especially with older schemes. Consolidating your pensions into an International SIPP helps you avoid paying multiple fees and reduces your annual costs.

Even though it has many advantages, there are also disadvantages of associated with International SIPPs compared to the DB scheme. Therefore, before you choose to transfer your pension, it is always advisable to get advice from an FCA-regulated financial advisor UK. You can learn more about defined contribution pension schemes by reading our DC Pension explanation here.

Why Use Cameron James for Your UK Defined Benefit Pension Transfer?

Now that you clearly understand the defined benefit pension and the considerations on whether to transfer it or not, what happens next?

We strongly advise that you get financial guidance to see whether a transfer is in your best interests or not. We are highly experienced in this field and can often spot when a final salary transfer may not be the best option at a very early stage. Thus, saving you time and money. We can also clarify any fees that may be charged.

Cameron James has years of experience in pension transfers. We are trusted by expats in 23 countries, with 13 nationalities, across 6 continents. Our financial advisers are experienced, qualified and SEC regulated and on the FCA Register ensuring your pension transfer process is in safe hands. We know and understand your needs.

Our Google Reviews say it all. We have experience in transferring USA citizens with UK defined benefit pension transfer into SIPP. Our clients are spread across the states spanning Texas, Miami, New York and Los Angeles.

Your dedicated advisor at Cameron James will happily assist you with your defined benefit pension transfer process. Cameron James is subject to EU MiFID II regulations. The Markets in Financial Instruments Directive – (MiFID II) is a European Union legislative framework designed to effectively regulate financial markets and improve investor protections and results.

Every one of our Advisers undergoes weekly Continuing Professional Development (CPD) training. This ensures they are up to speed on industry trends and are in the best position to give you advice. This is especially important in areas like pension planning, where the regulatory landscape is constantly changing and evolving.

Have You Considered All Things Above?

Click here to have a free initial consultation with one of our regulated Advisers so they can start providing you with advice on your best transfer options. We do not charge for any initial appointments.

We will talk you through the whole process, providing you with a full breakdown of the advantages and disadvantages specific to you, as well as the costs involved.


Our Founder & CEO -
Dominic James Murray

I have been in the UK Pension Transfer industry for over 11 years, and have witnessed seismic changes in the UK Pension rules over the course of that decade. Most to the benefit of the UK Chancellor or to Chequer!

My 5 years as CEO of Cameron James, have certainly been the most rewarding. My goal, has been a simple one. Provide clients with transparent financial advice on a low-cost basis, for them to make informed decisions to protect their families best interests.


Our Clients Love Working With Us!

We have worked hard for our reputation and we will be maintaining it.

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