A guide to transferring your pension

Gone are the days of working for one employer for your entire career. Previous generations rarely needed to think about transferring their pension or combining multiple pots at retirement.

Now, it's likely that you will have several pots from various employers. This guide to transferring your pension will help you understand your options and simplify your retirement planning

It's OK to have more than one pension, but transferring your pensions into one scheme could simplify retirement planning.

The simplest or easiest option may be to leave them well alone. However, there may be other options to consider, including pension transfers for better flexibility or cost savings.

One of those options would be to transfer the pension scheme.

Many people wonder if it's worth tranferring their pension as they begin to near retirement. You may want to consolidate so you have all your pensions in one place, while others are just looking for a new home for the pension. 

Here we discuss your options when it comes to transferring your pension scheme. 

Why would you consider transferring your pension?

If you're unsure where to start, this guide to transferring your pension explains why you might consider moving your pension.

There are many reasons for transferring your pension, especially if you're looking for better performance, lower fees, or simpler management.

If you combine them and transfer your pension, you will have a single pot. Our guide to transferring your pension shows how having everything in one place can make managing your retirement funds easier. One place to go for information. One set of paperwork.

Another provider may offer lower charges. Also, some providers offer lower charges for more significant amounts when you transfer your pension.

There are many options to consider when transferring your pension. For example, these range from a small number to a high number.

Some even offer specialist options to invest in shares and property, making a pension transfer appealing to those seeking greater investment control.

If you move and transfer your pension into one pot, you can access investment options in one place that suit your needs.

Using your pension to suit your retirement needs

Different pensions provide different options. If you prefer a flexible income, not all providers offer this and you you may need to move your pension for this option.

A defined benefits scheme can provide a guaranteed income for life. However, if you require more flexibility.

Or you are worried about the pension value being lost on death, transferring your pension may give you more flexible death benefit options. You should seek professional advice as this is not always the best option.

You cannot transfer your pension to somebody else. However, when you die, the balance of the pot may be left to someone else. Similarly, in the event of a divorce.

An ex-partner may receive part of your pot through transfer.

Thoughts before moving or transferring your pension?

There are two main types of pensions in the UK.

Defined Benefits

This type of scheme pays an income at retirement. It is based on your salary and length of service and schemes include final salary and career average.

Usually, these schemes are available to public sector workers. Also, some older workplace pensions.

Additionally, defined benefit schemes are the most complicated to transfer.

Defined Contributions

Also known as money purchase schemes. These are available for workplace and personal pensions.

Contributions build up a pot of money. You, your employer, or both can make them.

Your retirement income will be based on the size of the pot, which is why some consider pension consolidation or transferring pensions to improve growth potential. You will have different options to consider.

A professional advisor can help you explore the possibilities.

Transferring your defined benefits pension scheme

Suppose you do transfer from a defined benefits scheme. It will normally mean giving up a lifetime income for a cash value. Your pension provider transfers this cash to another provider. They then invest the money.

You can sometimes transfer from one defined benefits scheme to another.

Some employers offer an incentive to move your scheme. Nevertheless, even with this, you will generally be worse off.

When you cannot transfer your defined benefit pension

You may be in an unfunded public sector scheme. These include police, teachers, armed forces, civil service and the NHS scheme.

You can only transfer some schemes to another similar defined benefits scheme.

Benefits of a defined benefits scheme

A guaranteed income for life, the money will not run out. An income after your death for your dependents. Usually, half or two-thirds.

An increasing income over time helps with inflation. Schemes vary, but providers must provide minimums. There is also no exposure to stock market fluctuations.

Risks of transferring from a defined benefits scheme

You'll be giving up a guaranteed lifetime income should you transfer to a personal pension. One that increases over time.

Switching to a scheme where income is dependent on performance. You will have to choose where to invest, or pay someone to help you.

The income may not last as long as you want. They'll be running costs and investment charges to pay.

It's an irreversible decision as once transferred, you cannot change your mind.

Aspects for transferring a defined benefits scheme

Sometimes, it makes sense to transfer these schemes. It will depend on your personal circumstances and you should seek professional advice.

In some cases, it's required by law. You can manage your income to meet your needs.

With a defined benefits scheme, the income is fixed. You cannot increase or decrease if your circumstances change.

With a defined contribution plan, you can buy an annuity or choose a flexible income. Take lump sums, or use a mixture of the options.

Your money remains invested, as such, the value can fall as well as rise. Flexibility is not the only thing to consider.

Suppose you have a health issue and a lower life expectancy. A defined benefits scheme may not provide the same value.

Providers base the cash value offered on someone in good health. And with average life expectancy.

Passing your money to loved ones is also important. Defined benefits schemes, die with you and your dependents.

Your loved ones can inherit remaining funds in a defined contribution plan.

You may also be offered incentives to transfer the scheme. Your employer may provide you with a higher transfer value, or cash on top of the transfer value.

In most cases, they try to reduce their running costs as the incentives are not always as good as they look.

You should seek professional advice before making any decision.

Transferring a defined contribution pension plan

You can normally transfer these plans at any time before you start taking money from them. However, there may be some restrictions.

Check with your provider for your specific plan. In fact, some allow transfers after you've started taking money.

However, you should review this before you start taking money.

Is it a good idea to transfer my pension?

There's no simple answer to whether transferring your pension is the right decision, but this guide to transferring your pension can help you evaluate the pros and cons. It largely depends on personal goals, charges, and benefits. However, there are questions you should ask before transferring.

Will the new one be more expensive?

Not all providers charge the same. Therefore, you should compare the charges and costs of both plans. The charges could include initial set-up fees, annual management fees, service charges, transaction charges and trading fees.

Is it a good idea to merge all of my pensions?

This depends on why you want to merge them. For some, having everything in one pot makes it easier to track everything.

However, charges are important. They can have a significant effect on your pot. Thus, you should check the charges first. Don't transfer to have everything in one place.

If you're approaching retirement and your current scheme doesn't offer the income options you want. Then it may make sense to transfer to another provider.

With smaller pension pots of less than £10,000, it may be better to leave them. This way, you may able to take the whole pension as a lump sum and this won't affect any future pension contributions.

If you take more than your tax-free lump sum, it could affect future tax relief. Tax relief would only be given on £10,000, instead of the normal £60,000 pa.

So, if you plan to take some money out and continue to save, you should consider keeping smaller pensions. Taking the whole pot as a lump sum won't affect your annual allowance.

For those with high-value pensions, keeping small pots may be beneficial. You can withdraw these without using your lump sum allowance of £268,275.

Will you loose your benefits when you transfer your pension?

Different providers offer different benefits. As such, you may lose some benefits if you transfer and these could include additional death benefits.

A higher-than-normal tax-free lump sum and a guaranteed income rate. This is known as a guaranteed annuity rate. You may need to wait longer to access your pension.

Always check with your provider what benefits you would lose if you transferred.

For pensions worth more than £30,000, you may need to seek regulated advice.

Are there charges involved when you transfer your pension?

Some providers may charge an exit penalty and if this is the case, you need to check with your provider.

Set-up fees and management fees may apply to the new scheme. Again, check with the provider.

Investment choices when you transfer your pension?

Providers offer various options and these range from a small number of options to large. Some offer specialist options such as shares and property.

Having a wide selection of options can be great. It can also be more expensive.

You can always ask the provider if they have any ready-made options, or can they help you narrow down your choices?

Get expert financial advice

For a step-by-step approach and more detailed information, use this guide to transferring your pension as a resource alongside professional advice.

Transferring your pension can be simple or complex. As a result, it's an important decision and it can affect your quality of retirement.

Because it is so important, you should speak to a regulated financial advisor. 

Let Regulated Advice match you with a financial advisor for expert advice.