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You may be charged when you transfer your pension so make sure you fully understand the costs before you go ahead. Pensions are long term investments; you may get back less than you originally paid in. Your capital is not guaranteed and charges may apply.
A pension transfer is when you move your pension to another company. There are a few reasons you might be interested in doing a pension transfer. Here are some examples. You might want to do a pension transfer:
if a different company would charge you less for managing your pension fund so you can get access to a wider range of funds, which another company might be offering
if you've got different pensions from various jobs and you want to consolidate them into one single pension
if your current scheme is being closed.
You might be able to save money by doing a pension transfer if you can find a company that will manage your pension for less. But there's lots to think about before doing a pension transfer.
It can be a good idea to look into whether the management fees are lower elsewhere. You should also check how much it costs to transfer your pension fund and whether you'd save money long-term by doing a pension transfer.
You might also be charged a fee by the company you're transferring pension funds away from. So look into everything very carefully and check your pension transfer rules before you switch. It's important to avoid any nasty surprises and to get the full picture before you go ahead.
Plus, you might lose out on special features by transferring, such as a guaranteed annuity rate.
Before making any decisions on transferring your pensions you might want to talk to a pension transfer specialist to get some advice.
You can read more about how to transfer your pension.
You might save money by having a company manage your pension for less if you do a UK pension transfer. But be aware that you may face pension transfer charges to transfer in the first place. These might come from your existing pension company or your new one.
There are two ways the fees could be priced up for pension transfers.
Sometimes, pension transfer charges are a percentage fee of the amount you transfer across. For example, you could be charged 2% of the pension transfer value. So if your pension fund was worth £20,000 a 2% fee would mean you had to pay £400.
With other companies, pension transfer costs are a set fee. For example, this could be £500, whatever size your pension fund is.
There's no set rule as to which of these pension transfer charges will work out cheaper for you, as it depends on how much you have saved up in your pension. Here are a couple of examples:
If your pension fund is worth £20,000:
A 2% percentage charge would cost you £400
A set fee would cost you £500.
If your pension fund is worth £30,000:
A 2% percentage charge would cost you £600
A set fee would still cost you £500.
Remember that when you do your calculation, pension transfer value is an important factor. Compare the prices to see whether a set fee or percentage value will be best for you.
Before you do a pension transfer you should be thinking about the following questions.
Why am I transferring pension funds? It's likely that you're thinking of transferring your pension because you hope to get access to a wider range of funds, or save on management fees.
Do I have a defined benefit pension or a defined contribution pension? Check if you have a defined benefit pension or a defined contribution pension. A 'defined benefit pension transfer' (sometimes called a 'DB pension transfer') is different to a 'defined contribution pension transfer'. The type you have will affect how your pension transfer works.
How much is in my pension pot? Some pension companies will only accept your fund if it's a set amount or higher. For example, they might say it needs to be £2,000 or more, for them to manage it.
You might only want to put in a small amount, such as £1 a month. But be aware that most pension providers ask for a higher amount. This could be around £200 a month or £2,400 a year. So check the rules on this before you change pension provider.
Does my new pension provider have a good reputation? Check out some reviews before you make any decisions.
What are the fees involved in the new pension? Compare these with your old one.
Can you be involved in any of the investment decisions with the new pension? You might prefer to choose a provider that allows you to be involved if you'd like to.
Once you're ready to go ahead with transferring pension pots, you can use our comparison to find the best pension transfer options.
Alternatively, you can speak to a pension broker who will talk through your options. They'll be able to give you specialist advice before your pension switch.
Your pension fund value is the amount you've got available in your pension pot. It's the amount you'll have available to you when you retire.
Your pension transfer value is the amount your pension is worth if you move it to another provider.
If you want to do a defined benefit transfer, the pension transfer value means the cash value in your pension pot once you transfer it. Speak to a broker to get defined benefit pension transfer advice.
But if you've got a defined contribution pension, the pension transfer value is the value of your investment. This is often lower than the fund amount, so you'll have less in your pot if you decide to do a pension transfer. It could mean switching isn't a good idea.
When you do a pension transfer, there are several factors that can affect your pension transfer value. These include, among others:
how old you are
the scheme's retirement age
costs of living
your personal situation (married or single)
the pension value transfer index.
It's not a straightforward calculation so it's best to seek pension transfer advice from a professional.
Pension transfers can be complex. That's why it's a good idea to get pension transfer advice from someone who's knowledgeable about the pension transfer rules before you switch. Speak to a pension broker about your options.
Remember for some people it's a legal requirement to get financial advice before you transfer pensions. That's the case if you have a defined benefit pension worth more than £30,000. The same applies if you have a defined contribution pension worth more than £30,000, which guarantees a specific payment when you retire.
Your pension can be transferred to someone else if you die. You'll usually nominate who this will be when you set up your pension.
If you die before you're 75, your nominated person doesn't have to pay income tax when they withdraw money from your pension. But if you die after you're 75, they'll have to pay income tax. The amount they'll have to pay will be based on their existing income.
It might be possible to transfer your pension to someone else in other circumstances. But this isn't the norm and it usually only happens in exceptional circumstances.
Transferring your pension to someone else isn't usually a legal event needing solicitors. But if it relates to getting divorced or dissolving your civil partnership solicitors will need to be involved.
Transferring your pension to an account in another country may mean you are liable to being taxed on the total value of your pension.
You will need to make sure that your chosen overseas pension provider is offering a recognised overseas pension scheme, otherwise your current UK pension company may refuse to transfer your funds across.
If the overseas company is not offering a recognised overseas scheme, you could lose a significant sum of your total pension fund in taxes.
If you're contacted out of the blue by someone suggesting you transfer pension then it's important to be cautious. You should be aware that there are lots of pension scams out there.
Always make sure you find a reputable pension broker to talk to about your options.
You usually have 30 days to change your mind, but if the value of your pension investments drop in that time the money returned could be less.
The cash equivalent transfer value is the amount your current pension scheme will offer you if you want to transfer out of your defined benefit pension and into a defined contribution scheme. It’s expressed as a lump sum, but you won’t receive it as a lump sum. Instead, this amount will be used to purchase a pension pot that could – in theory – generate a similar retirement income to your current defined benefit pension. However, this is not guaranteed, and the new pension might generate less income (or sometimes more).
The overseas scheme you want to transfer your pension savings to must be a ‘qualifying recognised overseas pension scheme’ (QROPS). It’s up to you to check this with the overseas scheme or your UK pension provider or adviser.
If it’s not a QROPS, your UK pension scheme may refuse to make the transfer, or you’ll have to pay at least 40% tax on the transfer.
If you have several different pension pots, there are potential advantages if you consolidate them into one.
It can make it easier to keep track of and manage your pension savings more easily. You could also potentially save money if you can transfer from higher-cost schemes to a lower-cost one.
Our comparison tables include providers we have commercial arrangements with. The number of listings in our tables can vary depending on the terms of those arrangements, as well as other market developments. They are all from providers regulated by the Financial Conduct Authority (FCA).
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Last updated: 18 October, 2021
See our full set of pensions guides here.
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