Pension transfers explained | moneyfacts.co.uk
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Pension transfers explained

Michelle Monck

Michelle Monck

Consumer Finance Expert

At a glance

  • Most people can transfer their pension to a new provider.
  • Pension savers should check the benefits, costs and risk of transferring their pension – either with a financial adviser or by speaking to their pension providers.
  • Beware of pension scams – cold calls about pensions will not be genuine.

What is a pension transfer?

A pension transfer is when you move your pension from one pension provider to another pension provider. You may decide to transfer your pension if:

  • You change employer and want to move your pension funds from your old workplace pension scheme to the one of your new employer
    You have multiple pension funds from different providers and want to bring them together
  • You become self-employed and want to transfer a previous workplace pension to a stakeholder pension (SHP) or personal pension scheme
  • You want to be able to invest your pension into a wider range of assets by transferring to a self-invested personal pension (SIPP)
  • You are in a defined benefits pension and wish to take advantage of the pension freedoms available from private pensions
  • You are moving to another country and want to move your pension to a scheme in the new country

You may also find you have to transfer your pension, for example, if your current pension scheme is being closed or wound-up.

How to transfer your pension

Things to check with pensions providers before you transfer your pension:

 

  • That your current scheme allows you to transfer
  • That the new scheme you want to join accepts transfers
  • If you need to pay a fee to transfer out of your pension (early exit fees)
  • If your new scheme requires you to make payments into the scheme
  • If the new scheme changes the age at which you can take your pension
  • If you would lose any fixed or enhanced protection you currently have
  • If you would lose your right to drawdown a protected tax-free sum of more than 25% of the value of your pension
  • What guaranteed benefits you may be giving up by transferring.

If you have a pension worth more than £30,000 in a defined benefit or defined contribution scheme with a guaranteed amount you will be paid in retirement, then you must get financial advice before you can transfer your pension.
If you have less than £30,000 or a different type of pension, then you may decide if you want the help of a financial adviser in planning your pension transfer or to do this yourself. Advice regarding the transfer of a defined benefits pensions to a defined contribution pension has to start from the position that it is not in the best interests of the customer to transfer, so the positive benefits must be proven by the adviser for this to be allowed.

Whether or not you chose to seek help, it is important to gather the following information to help with your decision:

  • Ask your current pension provider for the current transfer value of your pension – you may need to request this in writing or be able to access this directly online
  • Ask your potential pension provider for an estimate of the value of the pension you could expect from your transfer value.

This can then be shared with your financial adviser, who can then use it to advise you on whether the transfer would be beneficial for you. Or, you can review this yourself, comparing the benefits of the old and new pension, including any guarantees, benefits or penalties that are in force.
Once you have made the decision to transfer your pension, then you should contact your new pension provider and ask them if they can organise the transfer process. Some pension providers will take your pension details and then complete the process for you, liaising directly with your old pension provider. However, you may be asked by your current pension provider to authorise the transfer or complete a pension transfer form. Usually, the transfer process can be between a few weeks up to a couple of months to complete.

Only transfer your pension to a UK pension scheme

You must make sure you transfer your pension to a pension scheme registered in the UK, as anything else will be considered an unauthorised payment by HM Revenue & Customs and you will have to pay a considerable tax penalty on the amount transferred.

Moneyfacts tip Michelle Monck

If the transfer value of your pension is less than the total value of your pension pot, it is likely your pension provider is charging an exit fee.

How to transfer your pension overseas

You can choose to transfer your pension to a ‘qualifying recognised overseas pension scheme’ (QROPSof if you want to transfer to a scheme that is not QROPS you will have to pay at least 40% tax.
How much tax you pay when you transfer your pension overseas depends on the location you are moving it to.
If you live in the UK, pensions that are QROPS and transferred to the European Economic Area (EEA) or Gibraltar will not incur tax. If you live outside of the UK, EEA or Gibraltar at any point within five years of making your transfer then a rate of 25% tax applies.
If you transfer your QROPS pension to a country outside of the UK, Gibraltar or EEA and live in the same country at that time then no tax is payable. If you live elsewhere, then 25% tax is payable on your pension savings.
If you move within five years of making your transfer, you will need to fill in form APSS 241 and send this to your pension administrator. If you have now moved to the country your QROPS is held in, you should get a tax refund, and if you have moved away from this country then 25% tax will be payable.
You will need to use Form APSS 263 to make a pension transfer overseas.

Is transferring my pension a good idea?

Transferring your pension is a decision that depends on your individual circumstances. We’ve set out some of the considerations to give you a start, but there may be other factors you need to consider.

The costs to manage your pension

Different pensions will have different management fees, making some more expensive than others. Some pension schemes will offer more investment funds to choose from, but you should consider if this is something you need.

To bring your pension funds together into one scheme

Some prefer the simplicity of having one place for all their pension savings, however management costs are a significant factor if you move from a low-charging pension scheme to a higher-charging one. Sometimes a pension scheme may increase its charges if you no longer make contributions to it, for example if you have a pension with a former employer and no longer make contributions. In this case, transferring your pension to your new employer’s scheme might reduce your management costs. However, you will still need to assess if the funds in the new scheme are right for you.

Loss of additional benefits

Some pensions come with additional benefits such as a payment made to your family should you die (called death benefits), a tax-free lump sum, a pension for your partner should you die or an annuity paid at a guaranteed rate, also called a guaranteed annuity rate.

The costs to transfer your pension

Some pension schemes may charge you to move your funds – you should check if this applies. Again, the longer-term benefits of a switch may outweigh the cost of the fee, or if you are nearing retirement, the fee to move your pension may not be worth it.

How much of a risk do you want to take?

It’s important you consider how much risk you are happy to accept when choosing a pension. The types of investment you make and their risk will depend on your age, the time to your retirement and how you want to use your funds when you retire, for example choosing to buy an annuity or leaving your money invested during retirement and drawing an income from this.

Beware pension scams

Pension savers must be careful of pension scams. Since January 2019, pension firms have not been allowed to cold call about pensions. Anyone approaching you without invitation by phone, text or email about transferring or cashing in your pension is not legitimate. You may also see adverts online offering a free pension review or no-obligation consultations. You should always check the Financial Conduct Authority register to make sure the firm you are speaking with is legitimate.

Pension transfer FAQ

Should I transfer a defined benefit pension?

According to the Moneyadviceservice, pension savers are usually worse off if they transfer out of a defined benefit scheme – even if they are incentivised by their employer. If you have a public sector defined benefit pension that is unfunded (this means pension income is paid from tax revenue rather than from assets or investment made from the pension scheme), then you will not be allowed to transfer this. Examples of unfunded pension schemes include the NHS, teachers and the civil service.
Anyone who has more than £30,000 in a defined benefit scheme must seek advice from a regulated adviser before they can proceed.

Transferring a self-invested personal pension

Those who have a SIPP hold a contract directly with the pension company and are responsible for transferring the pension to them. You may need to close the investments held in your SIPP to be able to transfer your funds to a new pension.

When can I transfer my pension?

You can transfer your pension at any time and usually up to one year before you expect to receive retirement benefits.

What happens to my pension when I change employer?

When you change employer, you can choose to retain your current pension and even decide to continue to make payments into it. However, you will no longer receive any contribution from your old employer. If you choose to contribute into your old pension and are a basic rate taxpayer, all funds will automatically have tax relief added. If you are higher rate taxpayer, you can claim the tax back on your pension payments using the self-assessment process. You may also find that the charging structure of the pension changes, for example a higher management fee for those not making new contributions. Alternatively, you may decide to transfer your pension into your new employer’s pension scheme.

Getting advice before you transfer?

Choosing to transfer a pension is a big decision and speaking with a regulated financial adviser can help you to clearly understand the benefits and risks of moving your pension to a new provider.

Buying an annuity

You can also use your pension to buy an annuity – this is an agreement that will give you a guaranteed income during your retirement.

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