Answered by Neil Adams
Why a transfer could be right for you
A pension transfer allows you to convert the value of an existing pension into a notional cash sum or ‘transfer value’ that can then be invested in a new money purchase (or defined contribution) arrangement such as a personal, stakeholder or self-invested personal pension (SIPP) or into your current employer’s workplace pension scheme.
One of the biggest problems with pension savings in the UK is that often when we move jobs or change address we lose track of our old pensions.
Apart from the risk of never being reunited with these hard-earned benefits, there’s also the risk that leaving our savings in older pension contracts means we end up paying too much in charges and fees or that, with the limited investment choice that might be on offer from such contracts, our savings never grow sufficiently to produce a decent level of income in retirement.
Final salary pension transfers
For those with old final salary scheme pensions, the risks include your old company going out of business before you ever come to draw your pension benefits. This will mean having to rely on the reduced benefits payable by the Pension Protection Fund.
Despite being generous, final salary scheme benefits are also notoriously inflexible and can offer poor value to those who may not be in the best of health by the time they come to retire.
For these reasons it can make good sense to transfer your old pension contracts into one cost-effective portfolio that you can manage from a single screen. By doing this you’ll also increase your chances of generating a higher level of income from your ‘pension pot’ than if it was spread over several different plans.
Why transfers are suddenly in the spotlight
The introduction of the new ‘pension freedoms’ in 2015 were a tipping point for many pension savers because of the previously undreamt-of levels of flexibility they introduced. Since April of 2015, anyone over the age of 55 with a money purchase pension can access it as frequently as they might wish.
Drawing an income…
They can take income or a series of tax-free lump sums or cash-in their whole pension pot (subject to the tax rules) and pretty much anything in between. The abolition of the ‘death tax’ also means that pension wealth can now be passed to beneficiaries free of inheritance tax and free of any income tax liability (for those who die before age 75).
The ability to create a significant financial asset from a final salary pension that would otherwise disappear once you (and possibly your wife) die is another key driver behind the growing number of pension transfers that we’re seeing.
Frequently Asked Pensions Advice Questions
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