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Five reasons to consider a pension transfer

Five Reasons to Consider a Pension Transfer

Written by Retirement Line

Transferring your pension to another provider could bring several benefits, from simplifying your arrangements to enjoying more growth of your pension savings.

Whether you are looking to make things simpler, reduce costs or access better investment options, a pension transfer can be a valuable part of your retirement planning. However, it isn’t for everyone, and you should consider all your options carefully before making a decision.

In this article, we'll explore how a pension transfer works, why you might consider it, and some potential pitfalls to watch out for. 

On this page:

  • What is a pension transfer?

  • Reason 1: Making life simpler

  • Reason 2: Reduce costs

  • Reason 3: More investment choice

  • Reason 4: Better investment performance

  • Reason 5: Ease-of-use

  • Are there any reasons NOT to transfer your pension savings?

  • Do I need pension transfer advice?

  • Important – a warning about defined benefit pension transfers

  • Transferring to overseas schemes

  • How do I arrange a UK pension transfer?

  • Further help and information

Important: 

  • This article relates to transferring savings to and from UK defined contribution pension schemes; there are different rules for defined benefit schemes – our guide to pension consolidation includes information on this. 

  • Be wary of anyone offering to help move your pension savings on your behalf or cash your schemes in early – read more about pension scams

What is a pension transfer?

A pension transfer is the process of moving your pension savings (a ‘pension pot’) from one pension scheme to another. There are a number of scenarios in which you may choose to do this.

For example, you may have pension savings in one or more workplace pension schemes dating back to previous jobs. You could transfer them all into one scheme – either one of your existing schemes, or a new pension that you set up.

If you are unsure whether you are able to transfer money from one of your pensions to another, talk to the schemes involved as they will be able to confirm what’s possible.

Here is a summary of five of the main reasons you may wish to consider a pension transfer:

Reason 1: Making life simpler

If you currently have money in more than one pension scheme, you may find consolidating your pension pots by transferring your money into one scheme makes things easier to manage. Instead of having multiple pensions, login details and investment funds to monitor, you can put everything into one place.

Consolidating your pension pots into one scheme may potentially make it simpler when you decide to turn your savings into retirement income, such as with an annuity or income drawdown.

Reason 2: Reduce costs

A pension transfer can also present an opportunity to move to a scheme with lower costs. Paying less in charges will, over time, contribute to a bigger pension pot and more income when you retire.

Reason 3: More investment choice

Transferring your pension may give you additional control over the way that your pension scheme invests your money. Some providers offer options such as investing directly in property or stock market shares, while others will offer just a small selection of managed funds.

In particular, a self-invested personal pension (SIPP) will typically give you more choice about your investments than workplace pensions or other types of personal pension. This may be attractive if you have the time and inclination to actively manage your investments.

Reason 4: Better investment performance

Following on from the point above, transferring your pension savings to another scheme or provider may result in faster and better growth of your pension pot. 

That could be because you choose a SIPP or other scheme that gives you the option of investing in funds with more growth potential – remembering that this typically comes with more risk. 

It could however simply be a matter of moving to a provider that achieves better investment growth in general. You can look at the investment track record of different providers as a guide – but as always, remember that past performance is no guarantee of future returns.

If you make the wrong choice, you could see your pension savings fall in value. You may wish therefore to take expert independent financial advice from someone who specialises in pensions. There will be a cost involved, but you may find that it’s worth it to give you the help you need about such an important decision.

Reason 5: Ease-of-use 

You may feel that by transferring your pension pot to a different scheme you will enjoy a better experience than with your existing scheme. For example, some schemes make it very easy to make additional contributions to your pension savings, while others feel a bit cumbersome. 

If you are unhappy with the service levels or ease-of-use you have experienced from your current scheme, this could be a driver for transferring your money elsewhere.

Are there any reasons NOT to transfer your pension savings?

So far, we have focused on the reasons why you might consider a pension transfer. But there are some reasons why you might benefit from keeping your pension pot where it is:

Exit and setup fees. Pension transfers may involve exit fees from your existing scheme and set-up fees from a new scheme (although often these fees aren’t involved). Make sure you understand all charges associated with a potential transfer.

Loss of benefits. Some older pension schemes in particular may offer valuable ‘safeguarded benefits’ such as life insurance, a guaranteed annuity rate (GAR) or the option of an earlier retirement age. You would typically lose these benefits when transferring to a new scheme, so make sure you understand what you might be giving up.

Added investment risk. Remember that transferring your pension savings in the hope of achieving a better investment return can also mean you take on more investment risk.

Advice fees. If you take professional financial advice before transferring your pension pot, you will need to pay for the advice. Some advice models mean you’ll face a recurring cost, for example if your adviser carries out regular reviews of your pension investments. This advice can more than pay for itself, but it’s something to bear in mind and factor into your decision.

See our guide ‘When should you consolidate pension pots?’ for more information on the pros and cons of transferring from one pension scheme into another.

Do I need pension transfer advice?

A pension transfer is a significant financial decision. You should make it after careful consideration and, ideally, with the guidance of a financial adviser. 

You are typically not obliged to take advice, apart from:

  • When transferring from a defined benefit scheme where the pension is worth more than £30,000 (see below).

  • When transferring from a defined contribution scheme where the value of safeguarded benefits such as a guaranteed income or guaranteed annuity amount (GAR) is more than £30,000.

If you do take advice, be aware of fraudsters who target people with pension savings. If someone contacts you out of the blue offering to transfer your pension to another scheme, it could be a scam. You can check the credentials of anyone who you are considering taking advice from through the Financial Conduct Authority.

Important – a warning about defined benefit pension transfers

This guide is mostly about how you can transfer your pension savings from one ‘defined contribution’ pension scheme to another. Also known as ‘money purchase’ schemes, these include certain types of personal pensions (including stakeholder pensions and self-invested personal pensions) and workplace pensions. 

Another type of pension is a ‘defined benefit’ scheme – also known as a ‘final salary’ or ‘career average’ scheme. These are typically older workplace schemes, although some employers still offer them today.

You may be able to request a final salary pension transfer to move your pension pot to a money purchase scheme. However, there are often considerable risks with doing this. In particular, you will be giving up the right to a guaranteed income linked to your salary, usually increasing each year in line with inflation.

It is a legal requirement to take independent financial advice before completing a final salary pension transfer in some circumstances. This includes where your pension is worth more than £30,000. It is a big decision, and one that you won’t be able to reverse, so please make sure you seek defined benefit transfer advice first.

Transferring to overseas schemes

You typically have the right to transfer your UK pension pot to another UK-registered pension scheme without paying tax on the transfer. 

If you wish to transfer to a non-UK scheme, it must be a recognised overseas pension scheme (ROPS) or you could pay at least 40% tax on the transfer. See gov.uk for a list of ROPS schemes.

Please seek more information from your scheme providers or independent advice if you are considering a transfer involving overseas schemes.  

How do I arrange a UK pension transfer?

Let's explore a step-by-step process you might take to transfer a defined contribution pension pot to another pension scheme. You would repeat the process each time you transfer from another scheme. 

1. Review your current pension scheme

Before making any decisions, thoroughly review your existing pension schemes. Make sure that you understand the following:

  • The scheme’s ongoing charges and fees.

  • Whether the scheme allows you to transfer your pension pot – most do, but it’s not always possible. 

  • Any safeguarded benefits it offers, such as a guaranteed annuity rate (GAR). 

  • Your investment options.

  • How well your investment has performed over the years.

  • Any exit penalties you’d pay if you leave the scheme. 

It's essential to have a clear picture of the performance and features of any schemes you are considering leaving. Transferring your savings away from a scheme carries risk as well as benefits. It's crucial therefore to understand these risks and how they might affect your decision.

2. Compare new pension schemes

Research potential new pension schemes to find the one that best suits your needs. Consider the investment options, fees and any additional features offered by the new scheme.

If you have multiple pension schemes, you may decide that one of them suits your needs. Alternatively, after looking at alternatives you may decide to transfer to a new provider altogether.

Of course, after your research you may decide that it’s best to remain in your current scheme – for example if you have valuable safeguarded benefits that you would lose by transferring out.

3. Consider professional advice

You don’t typically have to take financial advice before transferring from a defined contribution scheme. However, transferring can be a complex decision, and it's recommended to seek pension transfer advice from a qualified financial adviser first. They can help you assess the potential benefits and drawbacks of transferring your pension.

4. Request a pension transfer value

If you decide to go ahead with the transfer, the scheme you are transferring into will let you know what to do. The first step is typically to contact your existing pension provider and request a pension transfer value: the amount that you can transfer to the new pension. This may not match exactly the current value of your pension pot, as it may be subject to penalties or fees.

5. Notify your new scheme

You will get the transfer started by applying to the scheme you wish to transfer to – whether that’s a scheme you already save with, or a new one altogether. This tends to be done entirely online nowadays, but the process may involve physical form-filling for some providers. 

The scheme you are transferring to will guide you through their specific process for receiving the funds from your current scheme. This is likely to start with you supplying them with your existing scheme provider name and your pension policy number.

In some cases, you won’t have much else to do as they will handle all of the liaising with your old scheme. Sometimes however, you may need to complete additional online forms or paperwork.

6. The transfer process

The scheme you are transferring from will need to carry out several due diligence checks before authorising the transfer. This might be completed in a week or two, but typically it will take up to three months depending on the circumstances.  

In some cases, your existing scheme could refuse to make the transfer. For example, they could question the legitimacy of the new scheme, or worry that someone has pressured you into transferring your pension savings. 

Assuming your current scheme approves the transfer, they will pass your pension pot over to the scheme that you are transferring to. Your new scheme should keep you informed throughout the process.

7. Review your investment choices

Once the transfer is complete, your new scheme will invest your pension savings. You may have the opportunity to choose how they invest your money, or opt for default investment options.

8. Start making contributions to your new scheme

If you have transferred into a new scheme and wish to make contributions to it, you will need to set this up with them. Again, different schemes have different processes for this. Often nowadays you can easily make one-off or regular contributions via the scheme’s website or smartphone app. 

Further help and information

The government-backed MoneyHelper service offers free and independent information on pension matters, including pension transfers.

Pension transfers can be a complex area and may not be suitable for everyone. Please note that this article is for information purposes only and is not a personal recommendation. Please seek further information, guidance or advice in respect of your own circumstances.

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