I divorced my husband in 2011 and I immediately changed my 'expression of wishes' for my pension to my daughter.

My pension is a local government pension. Can this be left to her in the event of my death? If not what can I do to secure that my money goes to her? I don’t want it going to the government!

Any advice would assist going forward. I am only 60 but I want to be sure she can have the money. I have nothing else to leave her as I live in privately rented accommodation.

Steve Webb replies: The type of pension you currently have is a salary-related or ‘defined benefit’ pension.

With this kind of pension, it is generally possible for a spouse (or sometimes partner) to inherit an ongoing pension after your death, but not an adult child such as your daughter.

This is different to a ‘defined contribution’ or ‘pot of money’ arrangement where any unspent balance can potentially be inherited by someone you nominate who doesn’t have to be a spouse.

Despite this, there is one way in which you daughter could potentially benefit from your pension saving after your death. 

But, for reasons I will explain, you would need to think very carefully before going down this route.

It would involve converting your defined benefit pension with the Local Government Pension Scheme (LGPS) into a defined contribution ‘pot’ with a private pension provider.

The LGPS would give you a ‘transfer value’ figure which is the amount it would pay into a private pension in return for giving up your rights under the LGPS.

In principle, if you end up with a defined contribution pot and don’t spend all the money during your lifetime, your daughter could inherit the balance.

Note that this option is available to members of the LGPS because there is a fund (running to hundreds of billions of pounds) sitting behind LGPS pension promises and therefore you can transfer your share of this fund to another arrangement.

Other public servants such as teachers, nurses and civil servants do not have this option because there is no fund sitting behind the pension promises which have been made to them.

What are the risks of moving your pension?

Turning to your particular situation, it is very important to understand what you would be giving up if you transferred out of the LGPS.

The three key protections you would be sacrificing are as follows.

Protection against inflation: Your LGPS pension is increased every year in line with inflation whereas your transferred pension pot would be eroded each year as prices rise.

Protection against investment risk: As a member of the LGPS, your pension is guaranteed, regardless of what happens to stock markets or interest rates. By contrast, in a private pension arrangement the value of your pot could go up or down depending on market conditions.

Protection against living too long: When you manage a private pension pot, one of the big challenges is that you don’t know how long it needs to last.

If you have a long retirement there is a risk either that you run out of money or that you draw the money so slowly (to be on the safe side) that you end up with a miserable retirement. By contrast, the LGPS pension will last as long as you do.

What else does moving your pension involve?

Due to the advantages of staying in a defined benefit arrangement, it is mandatory to seek financial advice before transferring into a defined contribution pension, assuming that the transfer value is over £30,000.

And the adviser has to start from the assumption that a transfer is likely to be a bad idea.

Assuming that you can find someone willing to advise, they are likely to charge you thousands of pounds for the advice, and there is a strong chance that they will advise you against transferring.

Although you can go against their recommendation, they will have expertly considered your individual circumstances and made a recommendation which they believe will be in your best interests, so you should not do so lightly.

If you go against their recommendation you become what is called an ‘insistent client’ and some pension companies would refuse to accept a transfer in this situation.

One final factor to bear in mind is that the ‘transfer value’ that you are offered by the LGPS is likely to be relatively low compared with the value of the pension that you are giving up.

If you were in a company pension scheme you would probably be offered a much larger transfer value per pound of pension you were giving up, and this makes it even more likely that you will be advised not to transfer.

How else might you pass on something to your daughter?

I entirely understand why you want to provide for your daughter after you are gone, especially as she will not inherit a family home.

An alternative strategy to consider is simply to set aside money from your state pension plus LGPS pension (assuming you can afford it) and invest that money or perhaps buy a policy which would pay out a lump sum on your death.

This sort of approach would avoid throwing away the hugely valuable features of your current pension but could potentially also help to satisfy your wishes to benefit your daughter.

A financial adviser could advise on the best strategy, and at much lower cost than paying for pension transfer advice.