Defined benefit (final salary) pensions are valuable. They pay a guaranteed income for life, usually index-linked, with death benefits for a spouse. Yet some people receive very large Cash Equivalent Transfer Values (CETVs) — and wonder whether to take the money.
This guide explains how to assess whether a transfer makes any sense, and what the process entails.
What Is a Defined Benefit Pension?
A DB pension promises a specific income in retirement based on:
- Your years of service in the scheme
- Your salary (final salary, or career average)
- An accrual rate (e.g., 1/60th per year)
A typical example: 30 years service × 1/60th = 30/60 = 50% of final salary, paid for life.
The employer bears the investment risk. If investment returns are poor, the employer funds the shortfall. As a member, your income is guaranteed regardless of markets.
What Is a CETV?
The Cash Equivalent Transfer Value (CETV) is the capital value your scheme places on your future DB income. It is calculated by the scheme actuary, typically using:
- Your projected pension at normal retirement date
- Current and projected mortality tables
- A discount rate linked to gilt yields
Current CETVs (2026): Gilt yields are significantly higher than 2020–21 levels (when SIPPs were offering 40–50× multiples of annual pension). In 2026, transfer factors have fallen to more typical levels of 20–30×.
Example CETV Calculation
Jan has a preserved pension of £15,000/year in a final salary scheme, payable at 65 (she is currently 55). Her CETV is £350,000 — a multiple of 23× her annual pension.
To assess whether this is a “good” offer, Jan needs the critical yield calculated.
Critical Yield
Critical yield = the annual investment return the CETV must achieve, every year until (and through) retirement and drawdown, to produce the same income as the DB scheme would have provided.
| CETV factor | Typical critical yield | Interpretation |
|---|---|---|
| Below 15× | 7%+ | DB pension likely more valuable |
| 15–20× | 5–7% | DB pension generally more valuable |
| 20–30× | 3–5% | Transfer may be viable for some scenarios |
| 30–40× | Below 3% | Transfer could be viable |
These are rough guides. The critical yield calculation must be done by a qualified pension transfer specialist (PTS) for transfers over £30,000, using actuarial assumptions.
The £30,000 Regulated Advice Requirement
Legal requirement: Any transfer of a DB pension with a CETV of £30,000 or more from a safeguarded benefits scheme to a defined contribution scheme requires regulated financial advice from an FCA-authorised pension transfer specialist.
- The adviser must provide a Transfer Value Analysis (TVA)
- The advice must be in writing and cover suitability
- The cost is typically £3,000–£7,000 or more
- If the adviser recommends against transferring, you can still choose to transfer — but the adviser must record your decision to proceed against advice
Waivers or shortcuts are not available. There is no provision to bypass this requirement.
Scenarios Where Transfer Might Be Considered
Transfer is sometimes appropriate in specific circumstances:
| Scenario | Why transfer might be considered |
|---|---|
| Terminal illness (short life expectancy) | DB pays on life expectancy; a CETV could be passed to family |
| DB scheme insolvency risk | Concerns about employer covenant; PPF pays only 90% of benefits |
| No dependants | DB death benefits (spouse pension) not needed |
| Very high CETV (40×+) | Transfer value may be very favourable historically |
| Flexibility preference | DB income is fixed; drawdown allows variable income for tax planning |
| Consolidation of fragmented small pensions | Multiple small pots, with total private pensions of £30,000 or less |
In the vast majority of cases, independent regulated advice will recommend against transferring, particularly for DB pensions with index linking, generous death benefits, or active member status with years to run.
Pension Protection Fund (PPF)
If your employer becomes insolvent and the DB scheme cannot pay full benefits, the Pension Protection Fund (PPF) provides a safety net:
| Status | PPF protection |
|---|---|
| Already receiving pension | 100% of pension protected |
| Below scheme normal retirement age at insolvency | 90% of pension (capped) |
For 2026/27, the PPF cap for those below NRA is £49,710.68/year at age 65 (the cap varies by age and, since a 2021 court ruling, no longer applies to members with over 20 years’ service). If your pension is modest, PPF covers most of it; if it is very high, you may face a cap.
This PPF risk is sometimes cited as a reason to consider transfer — particularly for very large pensions in companies with weak employer covenants.
The Transfer Process
- Request a CETV from your scheme (free once per year; guaranteed for 3 months)
- Instruct a pension transfer specialist (regulated financial adviser)
- Receive Transfer Value Analysis (TVA) and formal suitability report
- Decide — accept transfer recommendation or overrule with written declaration
- Initiate transfer — nominated receiving scheme (typically SIPP) processes
- Confirm receipt — funds arrive in new scheme (typical timescale: 3–6 months)
Key Risks of Transferring Out
| Risk | Detail |
|---|---|
| Investment risk | DB income is guaranteed; SIPP value depends on markets |
| Longevity risk | DB pays for life; drawdown can run out |
| Inflation | DB is often RPI/CPI-linked; drawdown may not keep pace |
| Drawdown income tax | All drawdown (75%) taxed as income; DB income the same but at predictable levels |
| Loss of death benefits | DB spouse pension lost; replaced with lump sum in SIPP |
| Irreversibility | Transfer cannot be undone |
Common Scams Warning
“Pension liberation” and DB transfer scams are a major risk. Warning signs:
- Unsolicited contact offering to help you “unlock” your pension
- Promises of high investment returns
- Pressure to decide quickly
- Offshore or unregulated investment vehicles
- Claims that you can access your pension before age 55
Always verify the FCA register before instructing any adviser. The FCA maintains a list of regulated firms at fca.org.uk/register.
Your CETV
How CETVs Are Calculated
The actuary works backwards from your promised pension to a lump sum equivalent:
| Input | Effect on CETV |
|---|---|
| Higher promised annual pension | Higher CETV |
| Younger member (longer expected payout) | Higher CETV |
| Lower gilt yields | Higher CETV |
| Higher gilt yields | Lower CETV |
| Scheme-specific financial health | Varies |
Example of CETV in practice:
- DB pension promised: £12,000/year from age 65
- Your current age: 55
- CETV offered: £240,000 (multiple of 20x annual pension)
The “transfer value multiple” (TVM) of 20 is fairly typical. Multiples of 25-35 were common during the low gilt yield era (2015–2022); as yields have risen from 2022 onwards, multiples have compressed toward 15–25.
What the CETV Is Used For
Retirement option: If you are considering moving from a DB scheme to a DC arrangement (SIPP) for greater flexibility, for example, to access pension freedom, manage income tax, or plan an estate, the CETV is the fund you would receive.
Divorce proceedings: CETVs are used to value pension assets in financial settlements. Courts can issue pension sharing orders based on CETV calculations. All pensions should be valued and disclosed in divorce proceedings.
Trivial commutation check: When assessing whether trivial commutation applies (total private pension savings of £30,000 or less), DB pensions are valued at 20 times the annual pension, a simplified version of the CETV concept.
Getting Your CETV
You can request a CETV from your scheme once per year at no charge. It is valid for three months. If you want to proceed with a transfer after receiving advice, you must request an updated CETV if the original has expired.
Cashing In a Defined Benefit Pension
When You Can Access a DB Pension as Cash
There are four scenarios where DB pension savings can be taken as a cash lump sum:
| Scenario | Condition | Tax treatment |
|---|---|---|
| Trivial commutation | All pension savings worth ≤ £30,000 (DB valued at 20x annual pension) | 25% tax-free; rest taxed as income |
| Small pot rule | Individual pot worth ≤ £10,000 | 25% tax-free; rest taxed as income; up to 3 personal pension pots |
| Serious ill health | Life expectancy < 12 months | Potentially fully tax-free under age 75 |
| Transfer to DC + flexible access | CETV > £30,000 requires regulated advice | Tax on amounts above 25% tax-free cash |
The 20:1 Capitalisation Factor
When checking whether trivial commutation applies, a DB pension is valued at 20 times the annual pension income. This allows comparison with DC pot values.
Example: Your DB pension would pay £1,200/year. Its value for trivial commutation purposes = £1,200 × 20 = £24,000.
If you have a DC pot worth £5,500 in addition, your total pension savings value = £24,000 + £5,500 = £29,500, just under the £30,000 trivial commutation limit, so you could commute the DB pension if your scheme allows it.
The Verdict: Should You Try to Cash In?
In most cases, no. The DB pension provides:
- Guaranteed lifetime income: you cannot outlive it
- Inflation linking: most public sector and many private sector DB pensions increase with CPI or RPI
- Spousal pension: typically 50% of your pension continues to your spouse after your death
- No investment risk: you do not need to manage a pot
The only scenarios where a transfer might genuinely serve your interests are narrow and require careful individual analysis. Always seek regulated advice.