Things to consider when transferring your pension

The amount of income you have in retirement depends on the performance of your pension investments, therefore it is very important to regularly check that your pensions are not underperforming.

If you are considering transferring your pension, you are likely to be concerned and unhappy with your current scheme’s performance or administration charges, or you simply just want to consolidate your pension pots into one.

However, you need to carefully consider several things before making a final decision.

What are the costs and exit penalties when transferring a pension

Many people choose to transfer their pension investments to different pension providers, there could be better pension schemes available, but you may discover that by leaving your existing scheme you stand to forfeit valuable benefits.

Make sure you know any fees, charges, loss of bonuses or exit penalties associated with transferring your pension, you can check this with your existing provider. 

Also, compare the fees and charges of the new pension scheme to ensure they are reasonable and that you stand to benefit from lower fees and charges.

Check that the benefits of your new pension scheme and service outweigh any associated transfer costs and penalties that you will be liable for as this could impact your fund value.

If you are close to retirement you need to consider whether you are likely to recoup any transfer costs, this is less important for younger savers as you will most likely recoup any exit fees and charges over time. 

Consider any safeguarded benefits before transferring

Does your existing pension scheme provide guaranteed annuity rate (GAR)? Some pensions have built in guarantees of investment growth or annuity rates.

Whilst guaranteed annuity rates are uncommon in modern pension plans, many schemes from the 1980s and 1990s come with guaranteed annuities, which means at retirement all or some of your pension funds are transferred to a guaranteed lifetime income.

If your scheme has a guaranteed annuity rate and you plan to take your funds as a lifetime income it may be wise to stay with your current provider as they should offer you a better rate than purchasing an annuity from a new provider.

Other benefits

With profits funds are designed to protect your pension in falling markets but still allow you to benefit from some market growth, providing a more stable return. There is also the reassurance of a guarantee making them one of the most secure and valuable investments. 

Transferring out of With profits funds could also be subject to market value reduction, which can reduce the transfer value of your pension fund.

Life assurance are benefits are usually associated with workplace pensions and may be lost on transfer.

Loss of life assurance, if you require this you will need to get a replacement policy and any deterioration in your health could mean a new policy could end up being extremely expensive or even difficult to obtain.

Waiver of your pension premium, this is a type of premium insurance that helps pay your pension contributions if you become seriously ill or disabled and are unable to work for more than six months, this would also be lost on transfer. 

If your pension has the option of early retirement this will also become invalid on transfer and your new pension scheme may not offer this type of benefit.

Final salary defined benefit schemes

It is usually not advisable to transfer out of a final salary or Section 32 Policy as they usually have valuable benefits that you would lose by transferring out. 

In addition to a guaranteed income, the final salary also offers generous benefits to your spouse or partner should you die.

If you are considering transferring from a final salary or defined benefit pension, it is important to get a full understanding of the guarantees and benefits associated with the scheme before making your decision.

If you transfer a final salary to a personal pension plan, control over where your funds are invested, investment risks and scheme charges will be your responsibility, not your employer's. 

If you are not familiar with making pension investments or are not comfortable assessing investment risk, transferring to a personal pension may not be a good idea, making the wrong decisions could result in huge losses to your retirement fund.

It is recommended that you seek the expertise of an FCA regulated financial advisor who specialises in final salary, they can provide personalised guidance and explain the implications of a potential transfer. 

You would have to pay advisor costs, but it could also prevent you from making incorrect decisions that could prove extremely costly in the long run. 

Is transferring your pension the right choice

Transferring your pension fund is a very important financial decision that requires meticulous consideration as your income at retirement and smooth retirement planning are reliant on where your pension funds are invested and how well they perform.

It is important to weigh up all of the advantages and disadvantages of transferring before deciding whether it is the right choice, this can take a considerable amount of time and effort.

Be sure to seek expert advice from an FCA regulated financial advisor before you proceed

Do as much research yourself as possible to get a good understanding of the implications of transferring your pension. 

Even if you have the time, feel comfortable and have the confidence to make your own pension investment decisions, it is still recommended that you also seek advice from an FCA regulated financial advisor who can utilise their expertise to provide tailor made guidance based on your circumstances, they will also fully explain in detail the implications of a potential transfer just in case you overlook anything. 

Get Expert Advice

If you do use a financial advisor, you should also factor in the costs of ongoing financial advice when transferring.

It is recommended to have ongoing reviews of your pension investments to maintain a balanced and profitable portfolio and an FCA regulated financial advisor is the best person to assist you with this. Let Regulated Advice match you with a financial advisor for expert advice.