It is no secret that Final salary schemes, also known as “defined benefit” pensions, are fantastic pensions as they provide a promised income and a tax-free lump sum and there are limited risks to it’s members. However, if you are in ill health there is an alternative way you should consider taking benefits – but, it won’t work for everyone and you MUST seek expert advice (which we can offer you).

If you are in ill health and you are a member of a final salary scheme which is not yet being paid, you should be aware that you do not have to keep the promised income and that there are other options. Your scheme probably won’t tell you about it too; and this is an option you should consider if (or perhaps, especially if) you are a member of the following schemes:

  • teachers
  • local authority
  • NHS
  • armed services
  • universities
  • any final salary scheme


The average Final Salary Schemes will usually have the following features, which make them so attractive:

  • A promised income that is payable for the rest of your life
  • Which will have some sort of inflation protection, meaning it will go up each year (though there are some circumstances this doesn’t apply)
  • The option to take a tax free lump sum 
  • A pension payable to your spouse, should you die before them, typically, the average 50% of your income – but can be as high as 66%
  • A 5 year guarantee period – once it is being paid, it will be paid for at least 5 years, meaning if you die after year 1, it will continue being paid for another 4 years. 
However, if you are in ill health, and you have been told your life expectancy has been reduced, the promise of a lifetime income, and a reduced amount to your spouse after your death becomes less attractive. Especially if you both die shortly after the pension starts, there are often no benefits for adult children. 

The good news is, there are alternatives to keeping a final salary pension. 

If you are a member of a final salary scheme it is usually possible to take what is known as a “Cash Equivalent Transfer Value (CETV)”. These are free to ask the scheme to provide, and are good for seeing how much your pension income is “worth”. Of course, there is no obligation to proceed with a transfer, once you have a CETV. 

This means that in exchange for giving up all your rights in the final salary scheme, you are offered a transfer value which represents the true “worth” of these benefits and you are able to put them into a personal pension.

In simple terms, what this means is if you have a promised income of £10,000 per year, the scheme will look at that and do very complicated calculation filled with assumptions and say that is “worth” the equivalent of £200,000*, for example. 

*Please note these figures are not accurate, they are purely for illustrative purposes. There are a variety of considerations and calculations made when providing transfer values so the reality is this figure could be higher or lower. 

So instead of an annual income, you would have a large sum put into a personal pension. 

The advantage of a personal pension is that you can take an immediate lump sum and an income. The benefits are based on the amount of the transfer value and you would have some flexibility in your decision on how to take the benefits. Another advantage is, you are no longer bound by the final salary scheme rules. 

One of the big questions to ask, using the the example above, if you were to die after 5 years, would your spouse be better off with £5,000 (maybe £6,600 per year), or £150,000 in a pension? This is assuming you have taken £10,000 per year out, over 5 years. 

For most people a transfer would not be deemed suitable, as final salary pensions are “gold plated” schemes, however, if you are in ill health, there are reasons to look at transferring.


If you are in ill health, and have a final salary pension you wish to discuss with a UK qualified, Independent Financial Adviser, we are happy to help you talk through the options available to you. Please contact us on 01793 686393