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Investors who want to take their money out of a final-salary, or defined benefit, pension scheme and put it in a personal pension may still have to take a cut in their pension’s value, advisers have warned.

Gordon Webb, a former employee of JPMorgan, is trying to take money out of his final-salary scheme and put it in a self-invested personal pension (Sipp) to take advantage of more flexible tax rules on passing pension money down to heirs.

In a final-salary scheme, pension money cannot be passed on to children after a member dies, whereas money within a personal pension can.

Webb is unhappy with the value of his benefit offered by the scheme’s investment adviser, Mercer, which he says is 75 per cent of the equivalent value in the scheme.

The trustees have a policy of buying an annuity on the open market to provide the promised benefits to its members, though the annuity policy remains in their name.

Webb believes the equivalent value of the cost of buying an annuity should be offered to him, without a penalty.

However, the Pensions Advisory Service pointed out that members of a final-salary scheme have no right to transfer out in the year before their retirement, as in the case of Webb.

Mercer said that if trustees of defined benefit schemes had to provide transfer values to individual members, equal to the cost of buying out their scheme benefit, this would lead to an overall increase in the cost of providing defined benefit pension schemes.

This is because employer pension schemes use different risk levels to those used by insurance companies to calculate liabilities.

Copyright The Financial Times Limited 2017. All rights reserved.

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