Your final salary pension options at retirement are the pension itself, tax-free cash in exchange for pension, an earlier or later start, or a transfer.

Pension Wise, MoneyHelper's free, impartial, government-backed guidance service, is built around defined contribution pots and leaves final salary schemes out, so your scheme administrator and MoneyHelper's pension specialists are the free places to start. If you would like the options weighed against the rest of your money, leave your details on the enquiry form: the adviser who rings back, free, is FCA-authorised.

Final salary pension options at retirement in short

A final salary scheme promises an income worked out from your pay and your years of membership, so the choices are about when and how that promise is paid, not how to invest a pot. The usual choices are these five:

  • Take the pension as it stands. A set income each year for life, starting at the scheme's normal pension age.
  • Take tax-free cash. Some schemes pay a lump sum automatically, and some let you give up part of the pension for more cash.
  • Start early. The pension is usually smaller if it starts before the scheme's normal age.
  • Start late. Whether waiting adds anything depends on the scheme.
  • Transfer out. You swap the promise for a pot, which cannot be undone and carries real costs.

Which of these your scheme offers is written in its own rules, and the sections below take them one at a time. Cashing the whole pension in is a separate question, answered in can I cash in my final salary pension.

Who gets a final salary pension, and how do you claim it?

A final salary pension comes from membership of an employer's defined benefit scheme, and that scheme's rules decide when your pension can start and what it is worth. The administrator is the body to contact when you are ready to take it, and it can tell you which of the options below your rules allow. GOV.UK says most schemes fix an age for taking the pension, usually somewhere between 60 and 65.

If you left the employer years ago, your pension may still be held as a deferred benefit, covered in deferred final salary pensions. Unsure which kind of workplace pension you have? Checking whether a pension is final salary shows where to look.

Taking the normal pension: income for life, with no annuity to buy

The default is the simplest. MoneyHelper describes a defined benefit pension as a regular income for life, usually paid monthly, and the FCA adds that it usually increases each year to protect against inflation; do final salary pensions increase? covers how far. Most such schemes also keep paying some income to a spouse, civil partner or dependants after you die, as final salary pensions on death explains.

People often ask whether a defined benefit pension can be turned into an annuity, or taken as drawdown. Neither is how the scheme works. HMRC's Pensions Tax Manual rules out drawdown pension from a defined benefits arrangement. Buying your own annuity or using drawdown only comes into the picture if you move the value out to a pot first, which is the transfer option below; what an annuity is has its own page, and how the scheme pension sits beside the State Pension is in final salary pension and State Pension.

Tax-free cash: how a final salary lump sum is traded for pension

GOV.UK says a defined benefit scheme may let you take some of the benefit as a tax-free lump sum, with the rest paid as a guaranteed yearly amount, and tells you to check with the scheme. The catch, as MoneyHelper puts it, is that in certain schemes a lump sum means less income later on.

Schemes do it in two ways, and some do both. One example is the Civil Service classic scheme: its guide gives an automatic lump sum of 3 times the annual pension (less if contributions are owed for a widow's, widower's or civil partner's pension), and a member may opt to swap some pension for extra cash, losing £1 a year of pension for every £12 taken. Those terms belong to that scheme; your own scheme's guide or quote shows its terms.

The tax-free part is capped. The overall limit across your pensions is the lump sum allowance, set by GOV.UK at £268,275, and holding a protected allowance may raise it. How a defined benefit scheme counts towards that cap is set out in how defined benefit pensions use the lump sum allowance. How the cash is worked out, with the formulas, is in the final salary lump sum guide, and giving up future increases for pension now is a pension increase exchange.

How much cash to take means trading a bigger sum now against a smaller income for life, and the right balance depends on your health, what else you live on and whether anyone depends on the pension. An FCA-authorised adviser can set that against the rest of your finances, and this page's short form asks for no payment before they phone.

Retiring early or late: early and late retirement factors

An early start usually means a lower pension. MoneyHelper says some schemes let you take it earlier, but "you'll typically get a lower income than the scheme promised". The reduction is the early retirement factor, and each scheme sets its own. As one scheme's example, the Civil Service classic guide gives a pension age of 60 (lower for some members) and lets a member apply to take the pension from age 50, reduced if taken before pension age.

Waiting is the late retirement side. The same Civil Service guide lets a member defer, but a pension taken after age 60 "will not be increased to reflect the late payment", though it still rises in line with the cost of living. That is one scheme's rule, and yours may treat a later start differently. Ask through this page's call-back form and an adviser can explain, without charge, which figures to request from your administrator for each date.

Whatever the scheme allows, tax law sets a floor. The normal minimum pension age, HMRC's term, is 55 and goes up to 57 from 6 April 2028, apart from cases such as ill-health retirement and protected pension ages. Early retirement reductions shows how the cut is usually worked out, retiring early in the UK covers the wider picture, and ill-health retirement applies where health is the reason.

Transferring a final salary pension: the option with most to lose

A transfer swaps the scheme's promise for a pot in a defined contribution arrangement. The FCA and The Pensions Regulator "believe it's in most people's best interests to keep their DB pension", and the FCA lists what you give up: the guaranteed lifetime income for you and your dependants, the scheme's protection against rising prices, and the risk of the money not lasting a lifetime. MoneyHelper adds that you cannot reverse a transfer once it is made.

A legal check applies too. If the transfer value of your safeguarded benefits exceeds £30,000, the trustees have to confirm you received appropriate independent advice before going ahead; regulation 5 of the 2015 appropriate independent advice regulations (SI 2015/742) removes that check at £30,000 or less. The test is explained in the transfer advice requirement. Members of unfunded public-sector schemes, for which MoneyHelper gives the Teachers' Pension Scheme and the NHS Pension Scheme as examples, can only move to another defined benefit scheme.

The FCA tells people to steer clear of firms that get in touch unprompted offering to discuss their pension, and its pension scams page shows the warning signs; pension scams here gathers the checks. Whether a transfer could ever suit someone is weighed in should I transfer my final salary pension?, and how a transfer value is worked out explains the figure you would be quoted. If a transfer is on your mind, request a call-back before anything is signed, using the form beside this guide; going through what you would give up is part of that free conversation with an FCA-authorised adviser.

Final salary pension options: questions people ask

Should I transfer out to buy an annuity instead of keeping the scheme income?

That turns on your own circumstances, and the two are not like for like: the scheme pension is a promise built from your pay and service, while an annuity is bought from an insurer with a pot you would first have to transfer out. The regulators' view that most people are better off keeping a DB pension, and the advice rule above £30,000, both apply; the transfer question is weighed in full on its own page.

Can I take a lump sum instead of a final salary pension?

Not usually instead of it, but as part of it, through the scheme's lump sum or by giving up some pension. Whether a whole pension can ever be paid out as cash is covered in cashing in a final salary pension.

Do I have to take my pension at the scheme's normal age?

No. The Civil Service classic guide says members may defer taking the pension. What deferring does to the amount depends on the scheme.

Can I swap the lump sum for a bigger pension instead?

Some schemes allow it. The Civil Service classic guide lets a member give up all or part of the automatic lump sum for a higher pension, either for themselves alone or for themselves and a widow, widower or civil partner. Ask your own scheme whether it offers the same.

Is a final salary pension taxed?

The income is taxed; the cash need not be. To take one scheme's wording, the Civil Service classic guide says the retirement lump sum is tax-free within the lump sum allowance, while the pension "is treated as earned income", with any Income Tax due taken off by the scheme under the code HMRC notifies.

Your next step

The choices with a final salary pension are narrower than with a pot: take the pension, trade some of it for cash, start earlier or later, or give the scheme up through a transfer. Ask your scheme for figures on each option it offers. To have them weighed against your State Pension, other savings and tax, send your details through the form below; an FCA-authorised adviser rings to talk it over, and that conversation is free. The wider picture is in what a final salary pension is, and defined contribution options at retirement covers any pots you hold as well.

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