1 November 2023
Sometimes circumstances change, and people have different requirements from their pension scheme than when they originally took it out. If this occurs, you can make changes to your pension scheme.
In some instances, people simply want to transfer all their pensions into one scheme, to consolidate their finances. Another common situation is wanting to transfer your pension from one firm to another.
The exchange is possible, but not always easy. You might need to seek professional support during the process. Even if you can do the transfer yourself, seek guidance from an advisor. They can help ensure you make the decision that gives the best result.
In some cases, it simply might not be possible to transfer your pension.
In this article we round up the pros and cons of consolidating pensions, and other types of transfers. We also discuss the rules surrounding the process.
These decisions are normally complicated, and different people have different reasons for transferring. Personal preference plays a large part in it, one person might simply want a personal pension while another might prefer a pension annuity, for example.
Below we give some of the most common reasons behind transfers. However, these are just a guide. You should always speak with an expert to guarantee you make the right decision for you.
Here is a useful video about transferring your pension.
Whilst it is not always necessary to seek professional advice, it is normally a good idea.
In some cases, it is the law to seek advice, depending on your pension’s Cash-Equivalent Transfer Value if you are in a defined benefit scheme. Essentially, if the value exceeds £30,000 a financial advisor will have to deal with the transfer.
Even if your pensions transfer value means you are not required to seek advice, it is often wise to check that you are making the right decision with someone that knows what they are talking about. It is especially important if you have a pension question that you cannot find the answer to online.
A pension transfer value is essentially what the value of your pension is. If you are in a defined benefit or final salary scheme, this value is calculated by your scheme actuary and/or pension administrator. In a defined contribution scheme, the transfer value is essentially the value of your investments. This you can track yourself.
Financial advisor’s are required if your transfer value is £30,000 or above if you are in a defined benefit scheme.
The government put this requirement into place to try to stop people being scammed and just making bad decisions.
It can be frustrating to pay out for an advisor if you think you can do the work yourself. However, the statutory requirement for planned pension transfers can help even the most experienced investor.
We recommend seeking financial advice regardless of the size of the transfer, particularly if you are inexperienced when it comes to transferring your pension.
If you want to transfer your pension and don’t seek financial advice you are at a greater risk of being scammed and losing out financially.
Each option has its own risks to consider, which is why we recommend pension transfer specialists.
A pension transfer specialist can help you decide between providers. Whilst they charge for this service, their experience and knowledge can save you a great deal of time.
A shockingly high level of retirement benefits are sitting untouched. This is normally because when leaving a job the employee did not consolidate pensions and have just forgotten that they had them or the employer has gone.
It can be easy enough to lose contact with an old employer or forget that you have some of your entitled final salary left with an old scheme administrator. This can have big implications on your guaranteed income in retirement. The good thing is that you can regain access to them.
The pension tracing service is a free tool that can be used to see whether you have money sat in defined contribution pensions or defined benefit pensions. Any individual that uses this service will be asked to provide details of their old employers.
Be sure you are using the official government service, as there are many scammers out there. You will never be charged for the official tracing service.
Yes, you can transfer out of of these. In some cases, employer can be keen to limit future liabilities so encourage you to transfer.
These types of pensions include career average and final salary schemes.
However, members of public sector schemes normally cannot transfer. Nor can people with a ‘pension in payment’- in other words people already receiving their pension.
The Financial Conduct Authority recommends keeping hold of final salary pension benefits rather than transferring, as they think the guarantee that you get is better then uncertainty you have with what your pension could be under a defined contribution scheme.
For example your pension benefits increase with inflation.
Another reason why you might want to keep your career average or final salary pension scheme is that if you nominate a spouse or family member they might get benefits too. This is not as straightforward if you buy an annuity via a defined contribution scheme.
So, it might be worth weighing up the pros and cons with a pension specialist before deciding.
A defined contribution scheme is when your pension is invested in assets. This means it is normally pretty easy to transfer, or sell, depending on your wishes.
You can normally do the transfer yourself, but we would still recommend that you speak to an advisor.
No. Your money has to be transferred to a registered pension scheme.
Unfortunately, a pension transfer must occur from one type of pension scheme to another. So technically you cannot transfer your pension to a savings account.
Once you reach retirement age, however, you are entitled to withdraw funds. Then, you can withdraw your pension and then put that money into your savings bank account.
Since this is not strictly a ‘pension transfer’ you cannot do it until you are of retirement age. You can, however, make pension transfers before reaching retirement age.
Remember, the first 25% you withdraw will still be tax-free. However, withdrawing all of your pension simply to move it into a savings account is often not advised. The tax you will pay means people often lose a fair amount of cash.
You should also think about the interest rates of your savings account. If these are low, inflation might mean that you lose out financially.
If you want to transfer your pension to a savings account, you should speak with an advisor and explain your motivations behind this.
Many people want to transfer their workplace pensions into an SIPP so that all of their money is in the same place or they like the investment flexibility they can provide.
Before deciding to undergo the transfer, make sure that it is right for you. Remember, the decision can be risky, as you are then in charge of your own finances. Seek advice to understand exactly what this might mean for you.
The good thing about transferring a pension into SIPP is that you incur no tax costs, since it is not technically a withdrawal.
It is often a little trickier to transfer a defined benefit scheme than a defined contribution scheme, but with the right advice the process will be much simpler.
The other benefit of transferring pension is that SIPP is a less limiting type of scheme. You have more flexibility and options when it comes to making investments.
However, if you are inexperienced when it comes to investing financial advice is recommended. Check with your SIPP provider, since they might even offer help with your investment strategy free of any explicit charges.
If you emigrate and set up a foreign bank account, you may lower the cash value of your pension if your pension is made to this overseas account. This is because paying into a foreign bank account normally has more expensive fees attached.
To avoid expensive charges on your pension income you could transfer a pension, but it must be into a Qualifying Recognised Overseas Pension Scheme. Seek transfer pensions advice if this is something that you wish to investigate.
You also need to check whether you are even eligible to transfer to an overseas pension scheme, as your scheme may not allow this
We highly recommend consulting a financial adviser if you do move overseas. This is because if your new pension is not recognised as an official overseas pensions scheme any transfers may not be possible
An annuity is an investment choice purchased using one’s pension pot. In return, you get a regular retirement income for a set period, or even for the rest of your life. In essence this converts your defined contribution pension in to a defined benefit pension.
Normally it is possible to transfer to an annuity, but you need to research whether this is right for you.
It is quite common for defined contribution schemes to be spent on an annuity. Due to how your assets are invested, some defined contribution pension providers will actually expect you to use your scheme in this way. However, the trend in the UK is for people to look to an income via drawdown.
For other schemes, transfer to an annuity is less common.
The benefit of annuities is a stable retirement income that brings you financial peace of mind. This is especially true with those that run to the end of your life.
However, you should consider the cost of annuity rates.
There are a number of guides out there that offer tips regarding the pros and cons of annuities. You can also get estimates of the latest annuity rates on the market by searching the internet.
The best thing to do to avoid the risk of a high annuity rate, is to take advice from someone with expertise in the area. You can sometimes get free pension advice from your provider.
No, you cannot transfer your pension to a family member.
Some people want to use their personal pension lump sum to help a family member or friend. Whilst you cannot transfer your pension at your own discretion, there are still ways you can help out using your pension pot.
If you are married and get a divorce, or have a civil partnership that ends, part of your pension might be transferred over to them as ‘pension credit’.
If you want more advice on how to help out loved ones without transferring your pension, speak to a financial adviser. They can help you understand how to best use your pension pot.
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