Key considerations before transferring your pensions.
Key considerations before transferring your pensions.
Transferring and consolidating pensions can be a good idea if you're looking for a simple way to manage your finances. However, before you do this there are certain things you should check for, as in some circumstances it may be in your best interest to leave your pension investments where they are.
Transferring your pensions won’t change the tax benefits you receive, but if your pensions have other benefits that you’re entitled to it could impact these, so it’s important to consider whether transferring is right for you. You should also remember tax and pension rules can and do change, and their value depends on your circumstances.
Below are some of the key things you should consider but it’s not an exhaustive list. You should take into consideration your personal circumstances and objectives, and the characteristics of your current pension plan. Your current pension plan provider/administrator will be able to provide information about your existing pension plan if you need more help. Before making the decision to transfer you should consider your existing options – check how well your existing pension is performing, what fees you’re paying and whether you have a choice of investments that suit you. Also, check whether you’ll lose any valuable benefits (see more on this below). If you have the investment choices you’re looking for, benefits and low fees, then you may be better off by staying where you are.
We won’t accept transfers from defined benefit schemes (sometimes known as final or average salary pension schemes), and we won’t transfer a workplace pension where your employer is currently contributing. If you are considering transferring in pensions, please ensure that you are not giving up valuable benefits.
You should note that once you start the pension transfer process your existing provider may not accept you back.
Transferring and consolidating pensions can be a good idea if you're looking for a simple way to manage your finances. However, before you do this there are certain things you should check for, as in some circumstances it may be in your best interest to leave your pension investments where they are.
Transferring your pensions won’t change the tax benefits you receive, but if your pensions have other benefits that you’re entitled to it could impact these, so it’s important to consider whether transferring is right for you. You should also remember tax and pension rules can and do change, and their value depends on your circumstances.
Below are some of the key things you should consider but it’s not an exhaustive list. You should take into consideration your personal circumstances and objectives, and the characteristics of your current pension plan. Your current pension plan provider/administrator will be able to provide information about your existing pension plan if you need more help. Before making the decision to transfer you should consider your existing options – check how well your existing pension is performing, what fees you’re paying and whether you have a choice of investments that suit you. Also, check whether you’ll lose any valuable benefits (see more on this below). If you have the investment choices you’re looking for, benefits and low fees, then you may be better off by staying where you are.
We won’t accept transfers from defined benefit schemes (sometimes known as final or average salary pension schemes), and we won’t transfer a workplace pension where your employer is currently contributing. If you are considering transferring in pensions, please ensure that you are not giving up valuable benefits.
You should note that once you start the pension transfer process your existing provider may not accept you back.
Costs and Penalties
Is the new plan more expensive than your existing plan? Does your current plan provider impose exit penalties or charges if you transfer or stop making contributions?
The benefits of your new pension arrangements and service should outweigh any increase in cost to you or be worth the fees/penalties incurred. You should make sure that the transfer is not going to disadvantage you financially.
Find out if there are any transfer charges or exit penalties from your existing provider if you decide to move your pension. These could be penalties or charges that relate straight to the pension, or to the underlying investment.
Before you transfer, you need to ensure that transfering to the new pension arrangement is overall better for your needs and circumstances.
Guaranteed minimum increase in pension fund
This offsets inflation, but some company schemes will make discretionary increases too.
Guaranteed spouse’s pension
Some company schemes offer a pension to your spouse once you die.
Loyalty bonuses for staying in the pension plan
These can amount to significant amounts.
Protected tax-free cash
Before pension rules changed in 2006, some pension schemes allowed you to withdraw more than 25% of your pension as tax-free cash. While this benefit is still protected, if you transferred your savings this protection would be lost.
Discretionary increases to the value of the fund
Some schemes require the employer to increase the value of the fund by a specified amount, regardless of investment returns.
Market Value Adjustments (MVA) or Market Value Reduction (MVR)
These apply to ‘with profits’ investments where the allocated returns are higher than the value of the underlying investments, so if you cash them in or transfer them, a reduction is applied. Most ‘with profits’ policies have a date on which (or after which) the MVA/MVR won’t apply. But if applied they can significantly reduce the value of your pension.
With Profits
Has your current pension got exposure to a ‘with profits’ fund? If so, you may have attractive bonus rates that could be lost on transfer. Moreover, the transfer value of ‘with profits’ funds may be subject to something called Market Value Reduction (see above), which will reduce the size of your pension fund available to transfer.
Other benefits
Does your existing pension scheme provide life assurance, waiver of premium (a form of premium insurance) or the option of early retirement age? These may be lost on transfer. Any subsequent deterioration in your health, since these additional benefits were provided, may mean that replacement cover will be more expensive or difficult to obtain.
Is transferring to your current employer’s pension scheme an option?
If it offers the investment options you’re looking for and allows transfers, this could be a consideration as the charges may be lower or paid for by your employer. Transfers into employer schemes are not always possible but should be taken into consideration.