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 may also find you have to transfer your pension, for example, if your current pension scheme is being closed or wound-up.
Things to check with pensions providers before you transfer your pension:
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:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
You can transfer your pension at any time and usually up to one year before you expect to receive retirement benefits.
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.
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.
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