Should I transfer my final salary pension to a SIPP?

​Whether or not you should transfer your final salary pension to a Self-Invested Personal Pension (SIPP) will depend upon a number of factors which should be carefully considered with your financial adviser. As required by UK pensions legislation, your financial adviser should commission a pension transfer report from an appropriately regulated UK financial adviser (unless the transfer value is £30,000 or less). This report is commonly referred to as a Transfer Value Analysis (TVA). A TVA compares the benefits being given up from a defined benefit pension scheme with those that could be offered by a personal pension scheme like a SIPP. Factors that should also be considered by your financial adviser include your personal circumstances, retirement objectives, financial situation and investment risk profile.

A final salary pension promises to pay a pension for life, providing the pension has sufficient assets to meet its liabilities. Such a pension also increases to keep up with inflation (but often capped to 2.5% or 5% p.a.). A move to a personal pension, like a SIPP, offers more flexibility in terms of benefits, but you must rely on its investment performance which is unguaranteed and could mean the risk of lesser income than if you remained in your final salary pension.

However, some people do opt to transfer out their final salary pensions to meet their specific retirement objectives. Some examples include: if you are single and don’t need the benefits offered to a spouse/dependent; you want to take early retirement; you want to have access to your pension in amounts and at times under your control; you want to hold and draw your pension in a different currency like US dollars; you want to pass on to your spouse 100% of your death benefits; you have a long term partner, but are not married, and want that person (or any other relative for that matter) to inherit your pension on your death; you have an important and immediate cash need; or there is clear evidence that your pension scheme has a significant funding deficit and may not be able to meet its liabilities in the future.