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Transferring your defined contribution pension

Moving your pension is known as ‘transferring’. If you have a defined contribution pension where you’ve built up a pot of money, you can usually transfer this to another pension provider. This might be a new employer’s workplace pension or a personal pension you’ve set up yourself such as a self-invested personal pension (SIPP).

When can I transfer my pension pot?

You can normally move a defined contribution pension you have saved into to another pension provider at any time up to one year before the date when you’re expected to start begin taking money from it.

In many cases, you can also transfer even after you’ve started to take money from the pension. But in some cases the scheme might not allow this. It’s a good idea to check this before you begin taking money.

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Is it a good idea to move my pension?

It’s an important question and it’s important to check whether you’re likely to be better or worse off after transferring.

Whether a transfer is suitable will depend on your individual circumstances and objectives. This information can’t cover everything you’ll need to think about, but it can help you to make a start. 

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Questions to ask before you transfer

Will the new pension be more expensive than my existing one?

Before moving your pension from one place to another you should always seek to understand what the costs for each are. Not all pensions charge the same so you will need to check what you might be charged for in the pension you are thinking of moving. Some of the main charges to check for are:

  • any initial set-up fees
  • annual management charges for the investments you might choose
  • service / administration charges, sometimes known as platform fees
  • charges for specific transactions such as taking money out of your pension
  • trading fees which are charged for buying and selling certain investments.

Is it a good idea to bring all my pension pots together?

There’s no right or wrong answer to this question – it depends on why you want to do it.

Some people just prefer having all their pension pots in one place to make it easier to keep track of them.

However, costs are very important. Think carefully about transferring from a low charging scheme to a higher charging one just to keep things simple.

That said, if you are coming up to retirement and your current scheme doesn’t offer the retirement income option you want, bringing all your pension pots into one scheme that has the flexibility you need could be a good idea.

If you have small pension pots worth less than £10,000, it might be better to keep them where they are. This is because if you’re considering taking a lump sum at some point before you retire, if you take the pension as a small pot lump sum, withdrawing the whole amount, this will not affect any future pension contributions.

If you take more than your tax-free cash from your pension through flexible retirement income or as a lump sum, you may only receive tax relief on contributions to your pension pots up to £4,000 a year instead of the normal £40,000 annual allowance. This is known as the Money Purchase Annual Allowance.

So if you want to be able to take some money out but also continue to save, it might be better to keep smaller pensions where they are.

If you’ve built up a lot of value in pensions or think you will, you might also want to keep smaller pensions where they are. This is because they can be withdrawn without using up your lifetime allowance of £1,073,100 for 2021/22.  

Will I lose any benefits?

It’s possible that your current pension has valuable benefits that you’d lose if you were to transfer out of it. For example, additional death benefits, a higher tax-free lump sum or a guaranteed annuity rate option. 

A guaranteed annuity rate option is where the pension provider will pay you a guaranteed income for life (also known as an annuity) at a particular rate. This is often higher than the rates available in the general annuity market when you retire. 

Even if you hadn’t considered buying a guaranteed income with your pension pot, you might change your mind if you know you’re entitled to a high guaranteed rate. So it’s important to understand if you have any valuable benefits you’d lose if you moved away. 

If the value of any guaranteed annuity rate, or other valuable benefits, is more than £30,000, you might have to get regulated financial advice before you’re allowed to move the pension to another scheme. 

This rule is there to protect you and make sure it’s in your best interests to give up these benefits. 

Everyone is different. That’s why, unless you’re sure you understand the implications of transferring, it’s a good idea to speak to one of our impartial pension experts for free. They can go through the pros and cons with you. 

Are there any charges to move my pension?

Some schemes might apply charges, including an exit charge, when you transfer out. You should also take into account any set-up charges and ongoing charges on the new pension scheme you plan to transfer to.

If your scheme does contain an early exit charge, the charge can’t be more than 1% if you request to transfer away after the age of 55 but before your normal retirement age under scheme.

If you joined a new personal pension (including a workplace personal pension) after 31 March 2017 or a trust-based workplace pension after 1 October 2017, the scheme isn’t allowed to charge you for moving your pension if you’re over the age of 55.

It is important to check with your current provider what charges you might pay before transferring your pension. 

What investment choices are available if I move my pension?

Pensions offer lots of different investment options. Some offer a small number of investment options, while others offer a large number. And some will offer more specialist investment options, such as the option to invest directly in shares or property.

Think about whether you need more investment choice or if you’d be looking for some support with choosing investments.

Having lots of investment choice can be great, but it can also make the product more expensive and more difficult to choose.

If you’re in a workplace or stakeholder pension, this will have to offer one or a number of investments funds your money will be invested in if you’re not comfortable making a choice for yourself.

If you’re looking to set up a new pension, you can check if they offer any ready-made options or support with narrowing down your choices. 

Do you need financial advice?

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In most cases, you’ll be able to move your pension to another pension scheme without needing to get advice.

But some of the decisions you may have to make can be complex and we would recommend that you consider getting regulated advice.

If you have what’s called ‘safeguarded benefits’,  in particular if you have a guaranteed annuity rate and the value of these benefits is more than £30,000, you’ll have to get regulated financial advice before you can transfer.

This rule is there for your protection to make sure that giving up these benefits is in your best interests. This is because they would be lost if you moved your pension.

An adviser will review the benefits and drawbacks of transferring, based on your overall financial circumstances and plans. They’ll make a recommendation as to what they consider to be in your best interests.

If they do recommend transferring your pension, they’ll consider the options for you to transfer to, including reviewing any existing workplace pensions you have.

They could recommend transferring to an existing pension if this meets your needs or recommend a new product. 

If you get regulated financial advice, the financial adviser takes responsibility for the advice. So if you follow the recommendation they make and this turns out to be  wrong for you, you might be able to complain and get compensation.

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Ask yourself if you have enough knowledge and experience of investing to make decisions that will affect how much income you have in retirement, without the need for an adviser. 

How to move your pension

The first step is to find out your transfer value, which is the amount you have in your pension pot.

You can get this by asking your scheme administrator or pension provider.

Your scheme administrator or pension provider will then provide you with:

  • a document that sets out your transfer value
  • details of any extra benefits you’ve built up under the scheme
  • any exit charges that might apply
  • information that your new scheme will need if you decide to go ahead with the transfer.

There might also be extra forms included to start the transfer process.

Be aware that the transfer value usually changes as the value of the investments held in your pension will change regularly.

To start the transfer process, you’ll need to make an application to the pension scheme that you want to transfer to. Some providers have an online transfer process, while others might still need you to complete and return an application form.

When you’ve submitted the application to the provider, they’ll usually contact your existing pension provider or scheme administrator to arrange the transfer.

In some cases, your existing provider or scheme administrator might need you to send forms to them too. So it can help to check with them what they might need before you begin the transfer. This will help avoid unnecessary delays.

If you decide to transfer to a new pension scheme, your scheme administrator or pension provider must move your pension across to the new scheme within six months from the start of the transfer process.

When you’ve transferred to a new pension scheme, normally you’ll have given up everything under the old scheme. Some schemes will let you transfer only a part of your pension. You’ll need to check with your provider to see if they offer this option.

If you get financial advice, your adviser will usually take care of all of this for you. Although you still might have to fill out some forms. 

Be wary of pension scams

Your pension might be one of your most valuable assets. And for many it offers financial security throughout retirement and for the rest of your life.

But, like anything valuable, your pension can become the target for illegal activities, scams or inappropriate and high-risk investments.

Pension scams can take many forms and usually appear to most to be a legitimate investment opportunity. But pension scammers are clever and know all the tricks to get you to hand over your savings.

They target anyone, pressuring you into transferring your pension savings, often into a single investment.

If someone contacts you unexpectedly and says they can help you access your pot before the age of 55, it’s likely to be a pension scam.

You could lose all your money and face a tax charge of up to 55% of the amount taken out or transferred, plus further charges from your provider.

The investments might be overseas, where you have no consumer protection. And they might promise you a high guaranteed rate of return (typically 7-8%, or higher).

These are often false investments in luxury products, property, hotel developments, environmental solutions or storage and parking, which often don’t exist or are extremely high-risk with low returns. 

Remember, when you’ve transferred your pension into a scam, it’s often too late. You might also face a tax charge from HMRC.

The government has now banned cold calling about pensions. It’s important to ignore anybody who approaches you out of the blue about your pension entitlements or pension matters. It’s most likely to be a scam.

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Looking for us? Now, we’re MoneyHelper

MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

Continue to website
Looking for us? Now, we’re MoneyHelper

MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

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