Everything you need to know about transferring your pension from one scheme to another.
Financial journalist Kalpana Fitzpatrick (@KalpanaFitz) gets to the facts with the help of former pensions minister Ros Altmann (@rosaltmann).
There are a number of reasons why you may want to transfer your pension such as:
Most companies will allow you to transfer out your pension savings, but there are associated advantages and disadvantages to this approach.
A defined benefit scheme, also known as a final salary scheme, pays out a guaranteed income for life once you retire. Your income is calculated based on your final salary and the length of your scheme membership.
If you decide you want to transfer from a defined benefit scheme, then your scheme administrator will provide you with a ‘cash equivalent transfer value’ – the cash value of the benefits you have built up – which you can then move to another pension arrangement. You’ll have to fill out a form requesting the transfer and provide your administrator with the details of the new arrangement.
Defined benefit arrangements are regarded as gold-plated pension plans because of the guaranteed income security they provide and therefore, for the vast majority of people, it will be the right decision to stay within the scheme. In defined contribution schemes, your income is not predictable and will depend on investment performance and annuity rates when you retire.
However, the flexibility offered by defined contribution schemes, such as the ability to take money out from age 55, may be suitable in a small number of circumstances.
If you're able to transfer out of your defined benefit scheme and this involves a cash equivalent transfer value of £30,000 or over, you'll be required to get regulated financial advice first.
Transferring your pension allows to you consolidate the pension savings you’ve built in your defined contribution pension pot into another. If you want to transfer from a defined contribution plan, you should ask your scheme for the transfer value. Before you go ahead there are some key things you should consider:
If you’ve got more than one defined contribution or personal pension pot, you could boost your savings by combining them into one. There are associated advantages and disadvantages to this approach. Read our guide to find out more about how to consolidate your pensions.
If you move overseas, you may want to transfer your pension to a scheme in your new country, or to a new employer.
You can leave your pension pot in the UK and draw money from abroad, or you can transfer the entire pot abroad. You can mix your options as well – where you might leave one pot in the UK and move another overseas.
As always, there are benefits and negatives to each decision:
You can only transfer if your overseas scheme is recognized by the HMRC as a ‘qualifying recognized overseas pension scheme’ (QROPS). A full list of QROPS can be found on the government’s website.
If you leave your pension in the UK, note that it will be paid in pounds, so beware of fluctuations in exchange rates. If rates don’t go in the right direction, then you could see your income drop.
There are many positives to transferring your pension, and with the right preparation and advice, you can navigate any potential pitfalls as well.
We recommend you seek expert pension advice, especially pension advice if you’re considering transferring your defined benefit pension to make sure you’re not losing out on important benefits. For defined benefit pensions, a pension specialist will:
If advice isn't for you, MoneyHelper offer pension guidance which can help you find out what you can do with your pension pot, how to shop around and what to look out for with taxes and fees. It is available to anyone over age 50 with a defined contribution pension.
You can talk to someone over the phone or face to face.
For more information visit MoneyHelper. or call them on 0800 138 3944.