What Happens When You Leave a DB Scheme
When you leave an employer who provides a defined benefit pension, you typically become a deferred member of the scheme. Your pension benefits are preserved based on your pensionable salary and years of service at the date you left. You will not build up any further benefits, but your existing entitlement is protected by law.
Depending on your length of service, you may have several options:
- Less than 2 years of service — you may be offered a refund of your own contributions (less tax) or a transfer to another pension
- 2 or more years of service — your benefits must be preserved in the scheme until retirement, or you can request a transfer value
How Deferred Pensions Are Revalued
Your deferred pension does not stay frozen at the level when you left. It must be increased each year between the date of leaving and the date you start drawing it. This process is called revaluation.
| Benefit Period | Minimum Revaluation | Notes |
|---|---|---|
| Pre-1997 (excess over GMP) | Varies by scheme | No statutory minimum for some older benefits |
| 1997–2009 | CPI capped at 5% | Previously RPI; changed to CPI in 2011 |
| Post-2009 | CPI capped at 2.5% | Lower cap reflects cost pressures on schemes |
| GMP (1978–1997) | Fixed rate or Section 148 orders | Complex rules; depends on leaving date |
Your Options at Retirement
When you reach your scheme's normal pension age (typically 60 or 65 for older schemes, 65 or later for newer ones), you can draw your deferred pension. Your options typically include:
- Full pension — take the entire amount as a guaranteed annual income for life
- Pension plus lump sum — exchange part of your pension for a tax-free lump sum
- Early retirement — take a reduced pension before normal retirement age (typically from age 55, rising to 57 in 2028)
- Late retirement — defer drawing your pension beyond normal retirement age for an enhanced amount
Early Retirement from a Deferred Pension
Most DB schemes allow deferred members to draw their pension early, but your annual pension will be reduced to reflect the longer expected payment period. Typical early retirement factors reduce the pension by 3–6% for each year before normal retirement age.
For example, if your deferred pension at age 65 would be £15,000 per year and the scheme applies a 4% per year reduction, retiring at 60 would give you: £15,000 × (1 − 0.04 × 5) = £12,000 per year.
Should You Transfer a Deferred DB Pension?
You have the right to request a cash equivalent transfer value (CETV) for your deferred DB pension at any time before you start drawing it (and usually up to one year before normal retirement age). However, transferring means giving up:
- A guaranteed income for life
- Inflation protection on the deferred and in-payment pension
- A spouse's or partner's pension on your death
- PPF protection if the employer fails
For DB pensions worth more than £30,000 in transfer value, you must take advice from an FCA-regulated pension transfer specialist before proceeding. See our detailed guide on whether transferring a final salary pension is worth it.
Tracing Lost Deferred Pensions
Many people lose track of pensions from former employers, especially if the company has changed name, been taken over, or ceased trading. The government's free Pension Tracing Service can help you locate old schemes using your former employer's name. The forthcoming Pensions Dashboard will eventually allow you to see all your pensions in one place.
Next Steps
Contact your former scheme administrator to request an up-to-date deferred benefit statement. This will show your current preserved pension, projected value at normal retirement age, and your transfer value. If you are approaching retirement or considering your options, an FCA-regulated pension adviser can help you evaluate whether to keep your deferred pension, take it early, or explore a transfer.