How to transfer your pension – everything you should know!
- Is it recommended to consolidate my pensions?
- What are the benefits of transferring the pension scheme?
- What is the risk of transferring your work pension scheme?
- What considerations should I be aware of when transferring my pensions?
- What’s the best way to transfer my pensions?
- Can I do it myself or do I need a pension transfer specialist?
- How to find any lost pensions?
To transfer your pension or not?
I’ve got some funds in a private pension with my previous employer(s) and I am thinking about transferring to my current work pension scheme. Is that a good idea?
I have been asked that question by one of my blog readers quite recently. Let’s try to answer it.
- Is it recommended to consolidate my pensions?
It depends on your situation, individual circumstances, and objectives.
2.What are the benefits of transferring the pension scheme?
You would transfer your work pension scheme to:
- To get more control over your retirement income (more performance & fees transparency
- Get the opportunity to benefit from stock market development
- You were to face a reduced life expectancy
- Minimize the stress of managing multiple schemes
3. What are the risk of transferring your work pension scheme?
- It’s possible that your current pension has great benefits that you may lose if you transfer out of it, such as additional death benefits, a higher tax-free lump sum, a pension for your partner after you die, or a Guaranteed Annuity Rate (GAR) benefit.
- The value of your investment could decrease or increase due to exposure to markets, so you could get back less than you originally invested.
- Larger transfer values may be subject to the Lifetime Allowance Charge.
3. What is the difference between a defined benefit scheme and a defined contribution pension plan?
A defined contribution (DC) pension scheme is build of your monthly contributions and its value depends on how much money you paid into your pension pot and the growth of that money over time. It may be set up by you or an employer. A defined benefit (DB) plan is always set up by an employer and offers you a fixed benefit each year after you retire.
4. What considerations should I be aware of when transferring my pensions?
- Is your old scheme defined benefit (you’ll get £x in retirement, regardless of investment performance), or defined contribution (you pay in £y each month, what you get in retirement depends purely on how well your investments grew). If it’s a defined contribution scheme, then quite a simple decision (see my point about fees lower down), but if its the defined benefit, you should get a valuation from your old scheme and get advice.
- Exit fees/ transfer charges – usually a % of your pension savings
- What’s the size of your pension pot? There are some rules around small pots, which might give you flexibility…but also brings me to the next point…
- Fees – you’ll be being charged fees on your ‘old’ pension pot, potentially higher fees as any discount you got as an employee has been removed…so you need to compare platform/fund fees and see how that compares to the fees we pay with your current pension scheme provider.
- Simplicity – if it’s a marginal decision on fees, then personally, I’d go with simplicity and transfer in the value from your old pot. That way you won’t fall into the trap of forgetting the old pension…
5. What’s the best way to transfer my pensions?
There are two ways. First, you need to decide whether you want to do it yourself* or use some professional services for your pension transfer.
If you are going solo check/confirm:
- If your pension scheme is a defined benefit or defined contribution
- The T&Cs of your pensions to be consolidated to understand the benefits and potential risks of pension consolidation.
- If more benefits than risks check the management fees to understand if transferring a pension is still a good idea.
- Information about your old pension to transfer for your new provider (provider name or a policy number)
*If your defined benefit pension is worth more than £30,000 or if your defined contribution is pension worth more than £30,000 with a guarantee about what you’ll be paid when you retire (e.g. a guaranteed annuity rate) than you must get financial advice ahead of pension transfer as its a legal requirement.
If in doubt about anything contact the Pensions Advisory Service (a free Government hub of pensions knowledge). They can help if you have any questions.
If all the above sounds like a proper headache reach out to a pension transfer website. You can use services such the one offered by Pension Bee: https://www.pensionbee.com/ – you can transfer your previous pensions to them and manage the consolidated pensions in that new pot. They charge between 0.50%-0.95% depending on the size of your pot. See below how it works:
6. Can I do it myself or do I need a pension transfer specialist?
You can easily transfer your pension schemes yourself if they are below £30.000 as that doesn’t require any financial advice. You’ll need to pick up with your current work scheme provider to arrange the ‘transfer in’, potentially also contacting the ‘old’ provider to ‘transfer out’, a bit of form filling, but straightforward enough to do.
7. How to find any lost pensions?
You can use: