- What is a Pension Transfer?
- Why Transfer?
- Which Pensions Can You Transfer?
- Transferring Defined Benefit Pensions
- Final Salary Pension Calculator >>
- Transferring Defined Contribution Pensions
- Risks of Transferring
- Avoiding Scams
- Get Expert Advice
Content Manager at Drewberry
What is a Pension Transfer?
A pension transfer involves moving assets from one pension fund to another. How a pension transfer works depends largely on the type of pension you’re transferring.
You can generally transfer pensions at any time up until a year before the date you’re expecting to draw retirement benefits. In some cases you may still be able to transfer after you’ve started receiving a pension, but this is very rare.
Defined contribution pension transfer
A defined contribution or money purchase pension is arguably the easiest type of pension to transfer. As this is essentially a pile of cash with your name on it, it’s fairly portable and often fairly simple to move from one pension provider, platform or employer/workplace pension scheme to another one.
Defined benefit pension transfer
A defined benefit or final salary pension is usually more complicated to transfer and requires regulated advice if your pension is worth more than £30,000. This is because there’s no individual ‘pot’ with your name on it – instead, you’re building up a promise from the scheme to pay you an income when you retire.
The transfer value from a defined benefit pension is known as a cash equivalent transfer value (CETV) because it’s the equivalent cash amount you’d need to buy the same income your company would have previously paid you under the scheme.
Why Transfer a Pension?
You might transfer your pensions because…
- You want to consolidate multiple pensions into bigger pots
- You’ve changed jobs
- You’re looking to pay less in fees and charges
- You want access to a wider range of funds
- You’re moving overseas and want to transfer your pension to your new country of residence
- Your pension scheme is being closed.
One of the biggest reasons people transfer their retirement savings is because they’re looking to consolidate their pension holdings.The average person has 11 jobs in their lifetime so – especially with the introduction of auto-enrolment – it’s now very easy to build up multiple pension pots if you have multiple jobs over your career.
Consolidating your pensions might be done as part of a pension review. It involves reducing the number of pension funds you have into fewer, or even a single, holding.
This has a number of benefits:
- Single larger pot can reduce fees and charges
- Clear oversight of retirement savings
- Easier to manage your investment risk and tax planning
Having consolidated your pension pots it is much easier to manage your investment risk, review your pension holdings and better engage with pension tax planning with more oversight of your savings.
While it often makes sense to consolidate pensions into fewer pots, you need to think carefully before you do so to make sure it’s the best financial decision for you. Beware of any exit charges that may shift the balance between whether pension consolidation is a good idea or not.
Wealth & Investments Expert at Drewberry
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Time to consider transferring your pensions
Merging Workplace Pensions When You Change Jobs
With a defined contribution pension, your pension pot is tied to you not your employer. That means that you can take it with you when you leave if you want. However, your new workplace pension scheme does not have to accept a transfer in, so you may not be able to merge it with your new employer scheme.
There may also be exit fees and charges imposed by trying to move your pension from previous jobs, so it might not be financially worth it to do so.
An alternative is to move your accumulated defined contribution workplace pensions to an individual pension arrangement. Such options include a self-invested personal pension (SIPP) or a stakeholder pension.
This is a route often taken by those who choose to go self-employed or stop working. These individuals also have the option of using the National Employment Saving Trust (NEST) government pension scheme, which is available to the self-employed or directors of limited companies.
If you don’t transfer your pension from an old job, it doesn’t vanish. Even if you don’t pay into it any more, it stays invested and you’ll be able to access it when you reach the scheme’s pension age. You may, however, still want to combine old pensions with new ones to reduce ongoing fees and charges.
Wealth & Pensions Administrator at Drewberry
Moving Pensions for Access to More Funds
If you’re a keen investor and want access to more funds than your pension currently offers, it may make sense to move your pension elsewhere. Typically, if you have a personal pension arrangement, a self-invested personal pension will offer the most freedom in terms of the areas and funds you can invest in.
However, SIPPs typically have higher ongoing fees and charges than other pension arrangements. This is particularly the case when compared to a stakeholder pension, where the government has a strict cap on the fees such platforms can charge.
Still, if you want access to more funds it may be worth paying higher charges to faciliate this.
Moving Your UK Pension Abroad
It’s possible to move your UK pension scheme overseas, although the rules surrounding this are complicated.
Firstly, the overseas pension scheme you’re moving to must be recognised by HMRC. Such schemes are known as qualifying recognised overseas pension schemes (QROPS). Two main rules must apply for a scheme to be considered a QROPS:
- It must be registered as a pension scheme in the country where it’s established
- It must be recognised as such for tax purposes (so the benefits paid to you from the scheme must be subject to taxation).
Transferring Your Pension if Your Scheme Closes
Defined benefit pension schemes can close, either to new members or entirely. This is usually as a result of funding difficulties. If your company has gone into administration and the scheme has transferred to the Pension Protection Fund, then you won’t be able to transfer out. If, however, the scheme has simply closed then it may be possible to make a transfer.
Pension funds in financial difficulties may offer an enhanced transfer value for you to leave the scheme as an incentive, as you transferring out reduces the scheme’s long-term liabilities. However, as with all defined benefit pension transfers, you’ll have to carefully consider your options to decide whether it’s right for you, even with an enhanced offer on the table.
Senior Paraplanner at Drewberry
Which Pensions Can You Transfer?
Most private sector defined benefit pension schemes
If your final salary pension is worth more than £30,000, you’ll need to receive regulated financial advice before transferring. It’s also important to consider very carefully whether this is in your best interest, as a defined benefit pension transfer isn’t right for everyone.
You can transfer out of funded public sector final salary schemes, such as the local government pension scheme.
However, again it’s important to make sure this is the right decision for you before transferring.
You can’t transfer out of unfunded public sector schemes, such as the teachers’ pension fund, the NHS or the armed forces pension.
Unless you’re transferring from a private sector to a public sector scheme, it’s increasingly uncommon for final salary schemes to allow new members to transfer funds in.
Final Salary Pension Transfer
With a final salary pension, there’s no pot of cash with your name on it. That means any potential transfer cash you receive from a defined benefit scheme is meant to be equivalent to the sum of money you’d need to buy the same income you’d get from your company on the open market.
Many companies are offering generous pension transfer values in the current environment thanks to funding pressures. This is designed as an incentive to transfer. Another reason for today’s high transfer values is the difficulties with replicating a pension income with an annuity in a low-rate economic climate.
Why Transfer My Final Salary Pension?
- Take advantage of the new pension freedoms
Access your defined contribution pension from 55 compared to having to wait until you’re scheme’s normal retirement age to take a final salary scheme.
- Use the flexibility of income drawdown to take income and lump sums as and when you need them
This is compared to the regular, unchangeable payments you’d receive from a final salary scheme.
- Pass your new drawdown pension pot to loved ones
Aside from a reduced widow’s pension, there’s not usually anything left behind when the original pensioner dies, whereas with a defined contribution scheme there are favourable inheritance tax rules for passing down pensions.
- You’re in poor health
If your life expectancy is short, you won’t receive income from your final salary scheme for very long despite potentially having paid into it for years. With a transfer, you’ll receive a lump sum you can pass down to loved ones if you wish.
- Manage your own investments
Invest how you want and in a portfolio designed specifically to meet your retirement needs.
- Avoid doubts about the health of your employer
Final salary schemes have been at the heart of some of the most noteworthy corporate administrations in the UK in recent years, including the pension scheme ‘black hole’ which contributed to the demise of retailer BHS. If your employer collapses, your scheme will likely end up in the hands of the Pension Protection Fund.
Use the Final Salary Pension Transfer Calculator below to work out how high your transfer value might be.
Final Salary Pension Transfer Calculator
How good is your Final Salary transfer value?
Using our expertise we have modelled your results below so you can see what your final salary is likely to be worth as a single lump sum if you were to consider transferring out of the pension arrangement. Based on our experience and understanding of the transfers offered by various schemes we have created bandings based on what we would deem to be good value.
These calculators help but sometimes it doesn't beat talking to a human. If you
need any support please do not hesitate to pop us a call on 02084327333.
Head of Pensions Advice at Drewberry
This calculation and additional information does not constitute financial or other professional advice. You should consult your professional adviser or contact us directly on 02084327333 should you require financial advice.
A transfer out of a final salary scheme is irreversible and can only be done after advice has been given by a qualified financial adviser.
The transfer value bandings we calculate should only be treated as guidance, your personal circumstances and other wealth must be taken into account to understand whether your pension transfer is good value given your specific situation. For more information on the assumptions made in this calculator please click here.
Defined Contribution Pension Transfers
Defined contribution pensions are typically far easier to transfer than defined benefit pensions because they’re essentially a pot of cash with your name on it. You can move these as you see fit throughout your working life.
If you want to transfer your money purchase pension, you need to ask your provider for a transfer value. A defined contribution transfer value is usually simply the amount of cash you have in the pension, less any exit fees and charges you may have to pay for moving your pension.
You may be able to transfer your pension to another workplace scheme or to another pension provider or platform. This could be to consolidate your pension holdings or achieve lower fees and charges. You might also transfer a defined contribution pension because you’re looking to access more funds.
Wealth & Investments Expert at Drewberry
Risks of Moving Your Pensions
You have to be aware of the risks involved when making a pension transfer so you can make a fully-informed decision. A pension transfer isn’t for everyone and it may be better to leave things where they are.
Risks of transferring a defined contribution pension
- You might have to pay an exit charge when you make the transfer
- Your new pension might charge higher fees than your last one
- You might lose the right to take more than 25% of your pension upfront as a tax-free cash lump sum (available to certain pensions which fall under pre-2006 rules)
- You might lose a guaranteed annuity rate
- You might lose the right to take a pension at an age younger than 55
- If you have any benefits associated with your pension, such as Life Insurance, you may lose this
- There’s very little opportunity to change your mind.
If you’re concerned you might lose out on any rights you have under your old pension scheme by transferring to a new one, it’s best to ask an adviser to check over the details for you.
Wealth & Pensions Administrator at Drewberry
Risks of transferring out of a final salary pension
The biggest risk of leaving your defined benefit pension is that you’re giving up a guaranteed income for the rest of your life. If you choose to leave your final salary pension for drawdown, your retirement income is no longer guaranteed despite being more flexible. The risk is that it might run out sooner than you hoped.
Other risks involved include:
- You’ll need to take on all the investment risk yourself
- The value of your pension fund could go down as well as up in line with market performance
- You’ll lose any rights you had under your scheme, such as the widow’s pension
- Little opportunity to change your mind
- Increased fees and charges.
Make Sure You Avoid Pension Transfer Scams
Since the introduction of the pension freedoms, there’s been a higher incidence of pension transfer fraud as criminals use awareness of the new legislation to effectively con people out of their hard-earned savings.
A pension scam often starts with an unsolicited text message or cold call, offering you the chance to transfer, unlock or access your pension. It may even promise you can do so free of tax. If you receive any such communication from a company you’ve never heard of or have never had any dealings with, the best thing to do is to ignore it.
You can contact the Pensions Advisory Service if you’re being harassed by pension cold callers pressuring you into transferring your pension.
Scams come in many forms, but phrases such as ‘pension liberation’, ‘pension loan’, ‘loophole’, ‘tax-free’ or ‘time-limited’ should set of warning bells, especially from a company you don’t know anything about.
To protect yourself from pension scams, steps you can take include:
- Checking the firm’s contact details, such as telephone number and address, and see if these seem genuine
- Make sure you can call the company back later at a time that suits you
- Know that you can’t unlock your pension before the age of 55 (unless you’re terminally ill), and doing so will incur a hefty tax charge
- Don’t be rushed into making decisions
- Be extra cautious about ‘overseas’, ‘ethical’ or ‘new opportunity’ investments
- And, above all, if it sounds too good to be true it probably is.
Ciaran was Brilliant and provided a thorough service that delivered exactly what I was looking for. Very paitent and made even the most complex terminology sound simple.
Expert Pension Transfer Advice
For advice on transferring your pensions, whether you’re looking to merge some stranded defined contribution pension pots or leave a defined benefit scheme, the team at Drewberry is on hand to help.
Our experts have helped many clients with pension transfers using the skills and knowledge they have at hand. To get in touch, don’t hesitate to pop us a call on 02084327333.
Pensions & Investments Expert at Drewberry