Final Salary Pension Transfer for Expats: Should You Transfer?

Should an Expat Transfer a Final Salary Pension?

For most people, the honest answer is no. A final salary pension, also called a defined benefit or DB pension, pays a guaranteed income for life. A transfer swaps that promise for a pot of money that you invest and draw from yourself. Regulators in the UK start from the position that giving up a guaranteed income is unsuitable for most people, and an adviser has to show why it would be right for you.

Living abroad can add reasons to look at a transfer, such as currency, access and the wish to simplify things. It can also add risks. This guide explains how a defined benefit transfer works, what the numbers mean, what you would give up, the rules and the alternatives. It is part of our guide to UK pensions for expats. Last reviewed.

What Is a Defined Benefit Pension?

A defined benefit pension promises an income based on your pay and how long you were in the scheme, not on how investments perform. The employer or scheme takes the investment risk. Typically the income is:

• paid for life, however long you live;
• increased each year, often in line with inflation up to a limit;
• paid in part to a spouse or partner after your death; and
• sometimes accompanied by a tax-free lump sum at retirement.

These are called safeguarded benefits. They are common in the public sector (teachers, NHS, civil service, police, armed forces), and in many older private-sector schemes such as those in banking, engineering and utilities.

What You Give Up if You Transfer

A transfer gives you flexibility and the ability to leave what remains to your family. It costs you certainty. The question is whether the flexibility is worth the loss of certainty, and for most people with a sound scheme it is not.

The Numbers That Matter

Cash Equivalent Transfer Value (CETV)

The sum the scheme says it would pay out if you transferred. It is worked out by the scheme’s actuary from the income you would otherwise receive, using assumptions about interest rates and how long you will live. It can change when market conditions change, and it is often guaranteed for a limited period, commonly three months. A big CETV does not mean a good deal. It is only a figure to be compared with what you give up.

Transfer multiple

The CETV divided by the annual pension it replaces. If a scheme offers a lump sum of 30 times the annual income, the multiple is 30. Higher multiples can be a sign that interest rates are low, not that the offer is generous.

Critical yield

The annual investment return your transferred money would need to earn, after charges, to match the benefits you are giving up. The higher it is, the harder the transfer is to justify. If the critical yield is above what you could reasonably expect from a low-risk portfolio, the transfer is hard to defend on financial grounds. It is also a one-dimensional measure that does not capture longevity, inflation or sequence risk, so it is a starting point, not an answer.

Cash flow modelling

A forecast of how your money would last under different assumptions, including poor returns and long life. It shows whether a transferred pot could support the income you need and what happens in a bad scenario.

The Rules: Advice Is Required

If the value of your safeguarded benefits is £30,000 or more, you must take regulated advice before you can transfer. A scheme will not release the money without a certificate confirming that you have had advice. The adviser must hold the right permissions to advise on pension transfers, and the advice is regulated by the Financial Conduct Authority.

Other points worth knowing:

• The starting assumption for an adviser is that a transfer is not suitable, unless the analysis shows it is in your interests.
• An adviser who earns more only if you transfer has a conflict of interest. Charging structures that pay an adviser only if you go ahead have been banned for most DB advice, so ask how you are charged.
• Some public sector schemes are unfunded and generally cannot be transferred to a private or overseas scheme at all. Check with your scheme.
• Giving advice without the correct permissions is a red flag, as is any adviser who has contacted you unprompted.

Why Expats Look at a DB Transfer

• Currency. A pension paid in pounds when you spend in another currency.
• Access. Difficulty dealing with a UK scheme from overseas.
• Death benefits. A wish to pass the value to children rather than lose it on death.
• Poor health. A shorter life expectancy can make guaranteed income less valuable, although it does not by itself justify a transfer.
• Employer risk. Worry about the employer or scheme failing.
• Early access. A wish for flexibility in how and when to take money.

Each of these can be dealt with in some other way, and some of the worries are smaller than they appear. For instance, the Pension Protection Fund exists to pay compensation if a scheme’s employer fails and the scheme cannot meet its promises. The compensation can be less than the full pension, so it is something to understand rather than rely on.

How a Defined Benefit Transfer Works, Step by Step

1. Consultation and fact find. An adviser looks at your circumstances, pensions, plans and attitude to risk.
2. Letter of Authority. You sign a letter allowing the adviser to ask the scheme for information.
3. Information request. The scheme or trustee is asked for the details of your benefits.
4. Transfer pack. The scheme issues a CETV and the terms, valid for a limited time.
5. Analysis. The adviser compares the benefits you would give up with the alternatives, including the critical yield and cash flow modelling.
6. Written recommendation. You receive a report that says whether a transfer is suitable and why, along with the costs and risks.
7. Your decision. The decision is yours. If you proceed, the scheme requires evidence of advice before releasing the funds.
8. Transfer and investment. The money moves to the new pension and is invested in line with your plan.

This is the same process described in our pension review guide.

Where Would the Money Go?

If a transfer is recommended, the money normally goes to a defined contribution arrangement. For an expat there are usually two routes.

• An expat SIPP. A UK pension designed for people living abroad. There is no overseas transfer charge because the money stays in the UK. See our expat SIPP guide.
• An overseas scheme (QROPS). A scheme outside the UK. A transfer can carry a 25% overseas transfer charge unless an exclusion applies. See our QROPS guide.

The broader question of whether to move a pension at all is covered in our pension transfer guide.

Tax on a Defined Benefit Transfer

A transfer between pensions is not itself an income tax event. Tax arises in other ways:

• an overseas transfer charge of 25% may apply to a transfer to an overseas scheme, unless an exclusion applies;
• benefits taken later can be taxed in the country where you live;
• a tax-free lump sum available in the UK may be treated differently in your country of residence; and
• the UK rules for pensions and inheritance tax are changing from 6 April 2027.

Whether the tax-free element is tax free where you live is a question for a local tax adviser.

Alternatives to Transferring

• Leave it and take benefits from abroad. Most schemes will pay you overseas, and you can often choose which currency account to pay it into.
• Take a tax-free lump sum in exchange for a lower income. Some schemes allow this when you retire, keeping the guaranteed income.
• Retire early or late. Adjusting the date can change the income significantly. Schemes publish the terms.
• Change your beneficiary nominations. Check what the scheme pays to your family.
• Use other assets for flexibility. Savings or other pensions can provide the flexibility you wanted without touching the guarantee.
• Ask for a partial transfer. A few schemes allow a part of the benefits to be moved. Most do not.

Risks of Transferring

• Running out of money. A pot can be exhausted by poor returns, high withdrawals or a long life.
• Sequence risk. Poor returns early in retirement can do lasting damage.
• Inflation. A fixed income loses value over time unless investments keep pace.
• Behavioural risk. Being in control means being responsible for hard decisions in a downturn.
• Charges. Advice, platform and investment costs reduce the pot every year.
• Scams. Final salary transfers have been targeted by fraudsters.
• Irreversibility. Once a transfer is complete, you cannot get the guaranteed income back.

How the Rules on DB Transfer Advice Have Changed

Defined benefit transfer advice has been under close scrutiny in the UK after cases where people were advised to give up valuable guarantees and lost out. The regulator has since tightened its rules. The main points for you as a client are these:

• The starting assumption is that a transfer is unsuitable. The adviser has to be able to show that it is in your best interests.
• Specialist advisers. Advice on a DB transfer must come from an adviser with the right qualifications and permissions.
• Contingent charging. Since 1 October 2020, advisers have generally been banned from charging a fee only if the transfer goes ahead, because that gives them a reason to recommend it. Exceptions exist, for example for people in serious ill health or with a need for financial support.
• A written suitability report. You should receive a clear report setting out the recommendation, the reasons, the costs and the risks.
• Checks by the scheme. The scheme must see evidence of advice before it releases the money.

These rules protect you. They also mean that an adviser who is relaxed about whether you transfer is better than one who is pushing you towards it.

How Safe Is Your Scheme?

Concern about a scheme’s health is one of the commonest reasons people consider a transfer. It is worth separating the real risk from the perceived one.

• Funding level. Schemes report how well funded they are. A scheme with a deficit is not necessarily failing, because employers are required to agree plans to make good shortfalls.
• Employer strength. The employer stands behind the scheme. A strong employer is a reassuring sign. A weak one is a reason to look more closely.
• Protection if the employer fails. The Pension Protection Fund can take over a scheme if the employer becomes insolvent and the scheme cannot pay promised benefits. Compensation can be lower than the full pension for some members.
• Public sector schemes. These are backed by the government, so the risk of failure is generally seen as low.

You can ask the scheme for its latest funding statement and annual report. A good adviser will look at these as part of the analysis.

Common Types of Scheme Held by Expats

Taking a DB Pension While Living Abroad

Many expats assume they have to move a final salary pension to access it from overseas. In practice most schemes will pay you wherever you live.

• Payment. Most schemes pay into a UK or overseas bank account. Some can pay in other currencies, and you may be able to change the arrangement later.
• Currency. The pension is set in pounds. If you spend in another currency, the exchange rate affects what you receive. Specialist currency services can reduce the cost of converting.
• Life certificates. Some schemes ask overseas members to confirm each year that they are still alive.
• Inflation increases. These usually continue to apply abroad, but check how the scheme treats them.
• Tax. The pension is taxed according to the country where you live, and a double tax treaty may decide which country has the right to tax it. UK tax may apply under some treaties, for example for public service pensions.

The practical hassle of dealing with a scheme from abroad is real, but it is often smaller than people expect, and it is rarely a good reason to give up a guaranteed income.

Tax-Free Lump Sum and Other Options Inside the Scheme

Before considering a transfer, find out what flexibility your scheme already offers. Many allow you to:

• Take a tax-free lump sum. This is usually done by giving up part of your annual pension in exchange for cash (commutation). The amount you can take is capped by UK rules.
• Retire early. Often at a reduced income, the terms set by the scheme.
• Defer. Taking the pension later can raise the income.
• Take a bridging pension. A higher income until State Pension age, reducing afterwards. Not every scheme offers this.
• Choose a different spouse’s pension. Some schemes let you adjust it, at a cost to your own income.

Whether a lump sum from a UK pension is tax free in the country where you live depends on that country’s rules. It is not automatic.

Passing on a Defined Benefit Pension

One of the strongest arguments for a transfer is that a pot can be left to children, while a DB pension usually ends with a spouse’s pension. It is an argument that deserves proper weight, but it should be set against what you give up while alive. Questions to ask include:

• What does the scheme pay if I die early, to whom and for how long?
• Is there a guarantee period, such as five years of payments?
• Could life insurance provide for my family at lower cost than giving up the guarantee?
• How would the rules on pensions and inheritance tax from 6 April 2027 affect my family?

Life cover can be a cheaper way to protect your family than a transfer, and our guides to expat insurance and expat life insurance explain the options.

Questions to Ask Any Adviser About a DB Transfer

• Do you hold the permissions to advise on DB transfers, and where can I check them?
• What will it cost if you advise me not to transfer?
• Will I receive a written report with the critical yield and cash flow modelling?
• How will my income be paid and what could go wrong?
• What happens to my family if I die early?
• Are you paid more if I transfer?
• What would you do in my position, and why?

Warning Signs of a Poor Transfer Pitch

• Contact from someone you do not know, offering a free review or pension check.
• A promise that you will earn more than your pension pays.
• An emphasis on the size of the lump sum rather than the income you would lose.
• Pressure to decide before the transfer value guarantee runs out.
• Investments you cannot explain or verify, especially overseas or unregulated ones.
• An adviser who cannot show the permissions they hold on the FCA register.

Check any firm on the FCA Financial Services Register, and report suspected scams to the FCA on 0800 111 6768.

Three Illustrative Examples

These are simplified, hypothetical examples. They are not real clients and not a recommendation.

Example 1: A public sector worker in Dubai

A former civil servant is tempted by a high transfer value. The review shows a guaranteed, inflation-linked income and a spouse’s pension that a transferred pot would struggle to match. The outcome is to keep the pension, and to check the nominations.

Example 2: A small pension with a poor scheme

Someone has a small deferred pension in a scheme with weak funding, no inflation increases and a poor spouse’s benefit. The analysis is less clear-cut. Even so, the review would need to show that a transfer is likely to be in the person’s interests before it recommended one.

Example 3: Ill health

A person with a serious illness and a short life expectancy holds a valuable DB pension, and wants to leave value to their children. A transfer could be considered, along with other ways of providing for the family. The advice would look closely at all the options, and at the person’s wishes.

What to Have Ready

• your latest benefit statement from the scheme;
• the name of the scheme and your membership number;
• your State Pension forecast;
• details of your other pensions and savings;
• the income you expect to need, and from what age; and
• where you live now, and where you might live later.

If you have lost track of a scheme, the Pension Tracing Service can help.

Speaking to Us

We speak to clients by phone or video from our offices in Hong Kong and Kuala Lumpur, and we work with expats around the world. We will tell you plainly when keeping a final salary pension is the right answer. Book a call

Frequently Asked Questions

1. Can I transfer a final salary pension abroad?
Many schemes allow it, but you give up a guaranteed income, and advice is required if the benefits are worth £30,000 or more.

2. Is a final salary pension worth keeping?
Often yes. A guaranteed income for life, with inflation increases and a spouse’s pension, is hard to replace.

3. Do I need advice to transfer a DB pension?
Yes, if the safeguarded benefits are worth £30,000 or more. The adviser must hold the right permissions.

4. What is a CETV?
The lump sum a scheme says your guaranteed benefits are worth if you transfer out. It changes over time.

5. What is a critical yield?
The annual return a transferred pot would need to earn, after charges, to match the benefits you give up.

6. Is a high transfer value a good offer?
Not necessarily. High values often reflect low interest rates rather than a generous offer.

7. How long is a transfer value guaranteed?
Commonly three months, but check with your scheme.

8. Can I get my pension early if I transfer?
No. The minimum pension age of 55, rising to 57 on 6 April 2028, still applies.

9. What happens to a DB pension when I die?
Usually a spouse’s or partner’s pension is paid, and sometimes a lump sum, depending on the scheme.

10. Can I take my DB pension while living abroad?
Generally yes. Most schemes pay overseas, often into a UK or overseas bank account.

11. Is my DB pension safe if my employer fails?
The Pension Protection Fund can pay compensation, though it may be less than your full pension.

12. Can I transfer a public sector pension abroad?
Some unfunded schemes generally cannot be transferred to a private or overseas scheme. Check with your scheme.

13. Does the 25% overseas transfer charge apply?
It can, if you transfer to an overseas scheme and no exclusion applies. A UK-based expat SIPP has no such charge.

14. Will my adviser tell me not to transfer?
If it is in your interest, yes. The regulator’s starting position is that a transfer is unsuitable unless shown otherwise.

15. How much does DB transfer advice cost?
Ask for all costs in writing, including what you pay if the advice is not to transfer.

16. Can I transfer part of a DB pension?
Some schemes allow it, but most do not.

17. What is contingent charging?
An arrangement where the adviser is paid only if the transfer goes ahead. It has generally been banned for DB transfers since 1 October 2020, with limited exceptions.

18. Do I have to move a pension to take it from abroad?
No. Most schemes pay overseas members, usually into a UK or overseas bank account.

19. Can I take a tax-free lump sum without transferring?
Many schemes let you take one by giving up part of your annual pension. The limit is set by UK rules.

20. Is life insurance an alternative to a transfer?
It can be a cheaper way to protect your family than giving up a guaranteed income, depending on your health and needs.

Thinking About Your Final Salary Pension?

Speak to us before you ask your scheme for a transfer value or sign anything. Book a call

Risk warning: The value of investments can fall as well as rise. A transfer from a final salary pension means giving up guaranteed benefits. Tax rules can change and depend on your circumstances.