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A pension transfer involves moving your money in one pension pot to another. It can be quite a complicated process, requiring professional financial advice to ensure it is done properly – and for the right reasons. Yet doing so can often be very worthwhile, making your pension easier to manage, more flexible and better-performing. In this short guide, our Liverpool-based team here at Hanson Financial Services will share reasons why people consider a pension transfer, how to transfer and risks to be aware of. We hope you find this content helpful.
Reasons to transfer a pension
There are different types of UK pension – some of which can be transferred, and others not. The UK state pension, for instance, cannot be transferred from one “pot” to another. This is because the income comes from the state after you reach your retirement age, and is based on your national insurance contribution (NIC) record. Private/personal pensions, however, are usually called “defined contribution pensions” and involve a pot of money which can be moved. Your workplace pension(s) may also be defined contribution pension(s), although it is possible that you may have a final salary (or “defined benefit”) pension – e.g. NHS and police workers. These schemes involve your employer promising you an income in retirement, based on factors such as your years of service and pre-retirement salary.
With these caveats in mind, here are some reasons why you might consider a pension transfer:
- You change employers and wish to take the funds from your old scheme with you.
- You start your own self-employed business and wish to bring your pension pots together.
- You want to invest in a wider selection of assets/opportunities not offered by your current scheme, turning instead to a Self-Invested Personal Pension (SIPP).
- You want to convert your final salary pension into a defined contribution pot, so you have more flexibility and can pass the funds on to beneficiaries as an inheritance.
- You move abroad and want to take your pension with you.
- You have many pension pots from previous jobs and wish to amalgamate them.
How to do a pension transfer
The first thing to check with your financial adviser is whether your scheme(s) will allow you to transfer. Some may let you, but could come with punitive early withdrawal charges which you will need to weigh carefully. Of course, you also need to check that the scheme you want to join accepts transfers! The new scheme may also require you to make minimum payments, and may change the age from which you can start taking out your pension.
If you have a final salary pension (or a defined contribution pension with a guaranteed amount), you are legally required to take financial advice if its value exceeds £30,000. If your pension is different or valued less than this, then it is typically wise to seek professional advice about a pension transfer anyway. Remember, this could be a life-altering decision which is most likely impossible to reverse. For future peace of mind, make sure you have all the best and most up to date information available to you.
Risks to be aware of
Transferring a pension is not always in your best interests, and there are risks which you need to consider – preferably with the help of a financial adviser. Those looking to move from a final salary scheme to a defined contribution pension, for instance, should start from the assumption that doing so is likely not in their best interests. There are many benefits which you forsake that are difficult (if not impossible) to replicate elsewhere, such as the level of guaranteed, lifetime inflation-linked income generated by these “gold plated” schemes.
There is also the risk of fraud. Scammers love to prey upon pensioners due to the high value of their life savings, and convincing them to irretrievably move their money into a bogus scheme is sadly all too common. You can protect yourself by checking that the scheme is registered in the UK and by working alongside a financial adviser.
You should also be careful to check that the pension transfer will not interfere with your financial goals. For instance, if you wish to retire early, make sure that the new scheme does not come with a higher age limit on when you can withdraw the funds. You should also be sure that you will not be heavily charged by your existing scheme(s) for transferring the money out. Or, if there is a charge, make sure that the financial benefits of moving clearly outweigh the exit costs. Finally, check that the new scheme comes with a reasonable set of costs (e.g. lower fund management fees), a good range of investment options and ease of access/management.
Are you interested in talking to a financial adviser about your pension and investment planning needs? We’d love to assist you here at Hanson Financial Services.
Please contact us to arrange a consultation with our team – free and without obligation – to gain more clarity and peace of mind over your financial plan.
You can call us on:
Liverpool Office: 0151 708 7616
Manchester Office: 0161 401 0991
Chester Office: 01244 960 039Or email via: [email protected]