01

What a DB pension actually provides — the full value calculation

The value of a DB pension is systematically underestimated because its benefits are scattered across multiple dimensions that are difficult to monetise individually. A comprehensive assessment must include all of the following.

Core income: the annual pension income payable from normal retirement age, typically calculated as (years of service × accrual rate × final or career average salary). For a 30-year career at 1/60th accrual on a £60,000 final salary: pension = 30 × (1/60) × £60,000 = £30,000 per year.

Inflation linking: most public sector DB schemes (NHS, teachers, civil service, local government) increase the pension annually in line with CPI. Private sector schemes vary — some provide LPI (limited price indexation, typically capped at 2.5% or 5%). At 3% average CPI over 20 years, a £30,000 pension becomes approximately £54,000 per year by year 20 — the DB provides this automatically. A DC fund must generate sufficient growth to fund the same increasing income.

Spouse and dependant benefits: most DB schemes pay a pension to a surviving spouse (typically 50% of the member's pension) for life on the member's death. For a £30,000 pension this is £15,000 per year guaranteed to the surviving spouse regardless of when the member dies. To replicate this in a DC context requires additional life insurance or a joint-life annuity purchase at significant cost.

Death benefits before retirement: DB schemes typically pay a lump sum death-in-service benefit (commonly 3 to 4 times salary) plus a survivor's pension if the member dies before drawing their pension. These benefits are guaranteed by the scheme regardless of investment performance.

02

The FCA's 97% figure — why regulated advisers almost never recommend transfer

The FCA published data showing that in the 2019 to 2022 period, regulated financial advisers recommended that clients proceed with a DB transfer in approximately 3% of cases. This figure is not a target or a guideline — it is the outcome of thousands of individually assessed cases, each applying the FCA's transfer value analysis (TVA) framework.

The TVA framework requires the adviser to calculate the critical yield — the annualised investment return that the DC fund would need to achieve throughout the member's retirement to exactly replicate the DB income including inflation linking and spouse benefits. If the critical yield exceeds what a reasonable investment assumption would support (typically 4 to 5% net of charges), the adviser must recommend against transfer.

For a 55-year-old transferring a £30,000 DB pension with a CETV of £750,000: to replicate £30,000 of inflation-linked income plus a 50% spouse pension from a £750,000 DC fund over a 30-year retirement requires approximately 4.8% net annual returns — achievable but requiring significant equity exposure. If the member's risk tolerance is lower or the charges on the DC arrangement are higher, the critical yield becomes unachievable without taking inappropriate risk. The TVA also must account for the advisor's charges, which typically reduce the starting DC pot by £10,000 to £20,000 before a single investment return is earned.

The 3% transfer recommendation rate reflects the genuine financial assessment: for the vast majority of members, the DB scheme's guaranteed income cannot be matched by a DC fund at reasonable risk levels. This is not a conservative bias — it is the mathematically correct conclusion in 97% of cases.

03

The three circumstances where transfer can be appropriate

Despite the 97% figure, there are genuine circumstances where transfer can be in a member's best interest. Regulated advisers recommend transfer in approximately 3% of cases — these cases do exist and the transfer can be the right decision when the specific circumstances apply.

Circumstance 1: significantly reduced life expectancy. The DB pension is an insurance product against longevity risk. A member with a terminal diagnosis whose expected life is less than 10 years faces a fundamentally different actuarial calculation than a healthy 55-year-old. If the CETV is £600,000 and the member is expected to live 5 years, the DB would pay approximately £150,000 to £170,000 in that period — the DC fund retaining the balance is clearly superior. The member can also nominate beneficiaries for the DC fund, whereas most DB schemes pay minimal death benefits to non-spouse beneficiaries.

Circumstance 2: desire to pass wealth to the next generation. DB pensions provide defined, limited death benefits — typically a lump sum to date of death and a spouse pension. They do not pass the accumulated fund to children. A DC pension can be nominated to any beneficiary and passes outside the estate (until April 2027). For a member without a spouse or dependants who wants to maximise the legacy to children, the DC pension is structurally better at wealth transfer — though this benefit diminishes post-April 2027 when DC pensions enter the IHT net.

Circumstance 3: flexibility requirements that cannot be met by the DB. Some members have genuine need for income flexibility that the DB's fixed payment structure cannot provide — for example, a member who wants to draw heavily early in retirement for a specific purpose and draw less later. DB pensions can typically offer a commutation option (trading some pension for a lump sum) but cannot provide the complete flexibility of drawdown. This is a weaker argument and rarely sufficient on its own.

04

Pension transfer scams — the warning signs and scale of losses

Pension transfer fraud has caused over £2.5 billion in losses to UK savers since 2015, according to Action Fraud data. The typical victim: a 50 to 65-year-old with a significant DB pension who is approached speculatively — by phone, email or social media — with an offer to review their pension arrangements. The conversation leads to a transfer recommendation, often into exotic, illiquid or overseas investments that turn out to be worthless or inaccessible.

The warning signs that HMRC, the FCA and the Pensions Regulator identify as red flags: unsolicited contact about pension transfers from any source — legitimate advisers do not cold-call about pensions; promises of guaranteed returns above 8% (legitimate investments do not provide guaranteed above-market returns); offers to access pension funds before age 55 (55 is the minimum access age, rising to 57 in 2028 — earlier access outside the QROPS framework is almost certainly fraudulent); pressure to decide quickly; suggestions to transfer to overseas vehicles, storage pods, parking facilities, hotel rooms or other tangible assets; and advisers who describe regulatory requirements as mere formalities.

Verification process: before engaging any adviser on a pension transfer, check the FCA register at register.fca.org.uk. Legitimate pension transfer specialists are registered and authorised. Search the firm name and individual adviser name. Also check the FCA's Warning List at fca.org.uk/scamsmart — this lists known unauthorised firms and clone firm operations. Report suspected scams to Action Fraud (actionfraud.police.uk) and the FCA (fca.org.uk/consumers/report-scam).

05

The advice process — what to expect and what to insist on

If your DB transfer value exceeds £30,000 you must obtain regulated financial advice before transferring. This is a mandatory FCA requirement — not a recommendation. The adviser must be specifically authorised to advise on pension transfers (not all FCA-authorised advisers are). Check the FCA register for the pension transfer specialist (PTS) qualification.

The advice process typically involves: an initial fact-find (income, assets, liabilities, objectives, risk tolerance, health, family situation); preparation of a transfer value analysis comparing the critical yield against realistic investment return assumptions; assessment of all DB scheme benefits foregone; preparation of a suitability report; and a personal recommendation for or against transfer.

Cost: regulated advice typically costs £3,000 to £7,000 depending on transfer value complexity and adviser. Some advisers charge a percentage of the CETV (typically 2 to 3%) — on a £600,000 CETV this is £12,000 to £18,000. Compare advisers on both qualifications (PTS) and fee structure. Ask explicitly whether the fee is payable even if the recommendation is not to transfer — good advisers charge regardless of outcome (to align incentives), some do not.

Following advice: if the recommendation is to transfer, the adviser prepares a suitability report and facilitates the transfer to the chosen DC scheme. If the recommendation is not to transfer (the outcome in 97% of cases), you are legally entitled to proceed with the transfer anyway — but the adviser must note in the suitability report that you are proceeding against their recommendation, and the responsibility shifts significantly to you.