A defined benefit (DB) pension — also called a final salary or career average pension — promises a specific income in retirement based on your salary and years of service, not on how much you have invested. This guarantee is valuable, which is why converting it to cash or a transferable lump sum is heavily regulated and in most cases not advisable.
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 Regulated Advice Requirement for Transfers Over £30,000
If you want to transfer a DB pension worth more than £30,000 to a DC arrangement, the law (Pension Schemes Act 2015) requires you to take regulated financial advice first. The FCA has strict standards for advice in this area because:
- DB transfers are often irreversible
- Guaranteed income is given up permanently
- Transfer value assumptions can be misleading
The advice requirement is a legal gate, not a recommendation. The adviser must give you a personal recommendation. You are not obliged to follow it, but you must have received it to proceed with the transfer.
Cash Equivalent Transfer Values (CETVs)
A CETV is the current lump sum value your DB scheme places on your promised future pension. This figure:
- Is calculated by the scheme actuary
- Fluctuates over time (particularly sensitive to gilt yields — when yields fall, CETVs rise)
- Is valid for three months from the date of calculation
- Does not represent what the pension is “worth” to you — it reflects the cost of providing it elsewhere
For many people with healthy DB pensions, the CETV significantly understates the long-term value of the guaranteed income. See the Cash Equivalent Transfer Value guide for a detailed explanation.
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.