Transferring your pension

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:

• You’re changing jobs and want to move it to a new employer’s scheme. Your scheme administrator should inform you of your choices when you leave.
• Your current scheme is about to close or be wound up. It’s not unusual for this to happen, especially if a company goes bust.
• You’re looking to move your defined benefit pension into a defined contribution scheme to take advantage of pension freedoms. In most cases this doesn’t make financial sense as you could miss out on important benefits.
• You’re moving overseas.

Why should I transfer my pension pot?

Most companies will allow you to transfer out your pension savings, but there are associated advantages and disadvantages to this approach.

Advantages of transferring your pension pot:

• Reduce paperwork by only dealing with one pension provider.
• Get potentially better investment performance and improved rates which can boost your retirement income. Often, providers will charge a lower fee for a larger fund, so consolidating your pensions into one could make financial sense.
• Know exactly how much money you have saved in total into your pension pot.
• Easily monitor performance of you pension fund, if it’s linked to investments.

Disadvantages of transferring your pension pots:

• You could be charged for transferring from one provider to another.
• Some companies offer ‘Guaranteed Annuity Rates’ which could be lost if you consolidate your pensions.
• If your pension includes a minimum pension guarantee, death benefits or annual income increases, you would lose these benefits.
• Any invested funds are linked to stock market performance meaning your fund value could go down as well as up.

Transferring from a defined benefit (final salary) pension

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 (57 from April 2028), may be suitable in a small number of circumstances.

Things to consider before you transfer your defined benefit pension:

• Depending on the options you choose, you may give up a guaranteed income for life which means you may potentially run out of money if you live longer than expected.
• Transfer would mean you give up annual income increases, meaning the buying power of your pension will not keep pace with inflation and will buy less in the future.
• You will sacrifice any death benefits.
• You as the scheme administrator would take on the investment risk.

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 from a defined contribution scheme

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:

• Choice of investments: You want to make sure the new scheme provides the right level of choice to match your attitude to risk.
• Charges: Some schemes apply a charge when you transfer out.
• Ongoing advice: Some plans need to be reviewed regularly.
• Loss of benefits: By transferring out you may lose certain benefits under the old plan.
• The quality of administration in the new scheme.

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.

Overseas transfers

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:

• If you leave the pension pot in the UK, your choices, such as how you withdraw the benefits, will remain the same.
• Taking your pension overseas can cause tax problems, such as being taxed on your tax-free lump sum if you haven’t already taken it.
• If you do transfer overseas, there may be a fee for having the pension paid into an overseas account.
• If you move overseas, you can stop paying into the pension and start taking money out from age 55. You are able to continue paying into it, but you may not benefit from the tax relief.

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.

Seeking pension advice or guidance

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:

• Review your defined benefit pensions.
• Ask a few questions about you current circumstances, retirement goals and attitude towards risk.
• Check what benefits you could lose if you transfer your pension.
• Make recommendations based on what’s the best option for you.

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.