Transferring your pensions

Your questions answered

There are a number of different reasons why you may wish to consider transferring your pension schemes, whether this is the result of a change of employment, poor investment performance, issues over the security of the pension scheme, or a need to improve flexibility.

You might well have several different types of pension. The gold standard is the final-salary scheme, which pays a pension based on your salary when you leave your job and on years of service. Your past employer might try to encourage you to move your pension away by boosting your fund with an ‘enhanced’ transfer value and even a cash lump sum.

However, this still may not compensate for the benefits you are giving up, and you may need an exceptionally high rate of investment return on the funds you are given to match what you would get if you stayed in the final-salary scheme.

Alternatively, you may have a money purchase occupational scheme or a personal pension. These pensions rely on contributions and investment growth to build up a fund. When you retire, this money can be used to buy an annuity which pays an income.

If appropriate to your particular situation, it may make sense to bring these pensions under one roof to benefit from lower charges, and aim to improve fund performance and make fund monitoring easier.

Transferring your pension
Pension transfers are a complicated area of financial planning and there are many things to consider before proceeding with a transfer. Here are some of the most common questions we are asked by our clients considering this course of action.

Q: Will the new pension be more expensive than my existing one(s)?
 If the new pension costs more, you must make sure you are satisfied that any additional costs are for good reason. For example, if the new pension is offering you access to more funds than your current pension(s), consider whether you need them. You will receive information about the costs of the new pension in the Key Features Illustration (KFI) that is provided to you. The Key Features Illustration refers to the actual funds and investments that you will be using in your new pension.

Q: Is it a good idea to transfer all of my pensions into a single new pension?
If you currently have several pensions and are looking to put them into one new pension, you need to fully understand the associated costs. You may not necessarily need a new pension to put all of your pensions together. If one of your existing pensions already meets your needs and objectives it might be possible to transfer all of your other existing pensions into that one.

Q: Will I lose any benefits?
It is possible that your current pension may have valuable benefits that you would lose if you were to transfer out of it, such as death benefits or a Guaranteed Annuity Rate (GAR) option. A GAR option is where the insurance company will pay your pension at a particular rate, which may be much higher than the rates available in the market when you retire.

Q: Are there any penalties if I transfer?
 Some pensions may apply a penalty when you transfer out.

Q: Would a stakeholder pension meet my needs and objectives?
Stakeholder pensions are often the cheapest pensions available and, if appropriate, this could be an option to consider.

Q: Will the investments in the new pension be right for the amount of risk I am prepared to take?
We can explain the different funds and investments and make recommendations so that the investments chosen are appropriate for the amount of risk you are prepared to take with your money.

Q: Will I need ongoing advice?
Some fund selections may need to be reviewed from time to time to maintain the balance of your portfolio. It is also possible that the amount of risk you are prepared to take could change over time, for example, if your financial situation changes or as you get nearer to retirement.

The value of investments and the income from them can go down as well as up and you may not get back your original investment. Past performance is not an indication of future performance. Tax benefits may vary as a result of statutory change and their value will depend on individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent finance acts. Transferring your pension will not guarantee greater benefits in retirement.