If you’ve worked multiple jobs over the years, you may have been auto-enrolled into a number of pension plans by your past employers. You may be a deferred member of a final salary scheme, or you might also have a few pension plans that you opened yourself.
Pension arrangements generally allow you to transfer your pension benefits from one arrangement to another. The transfer rules depend on the arrangement you are transferring from and the arrangement you are transferring to.
If you are considering transferring your pension, there are many things to consider. The first thing that you will need to do is ensure that your current scheme allows you to move your money to a new scheme. Usually, if you are yet to withdraw any money from your pension, or if you have not yet reached your scheme’s normal retirement date (NRD), a transfer should be possible. Although there are more stringent rules for final salary schemes. Sometimes it is even possible once you have started to use your pension, but it will depend on the provider and your circumstances.
Why You Might Want to Transfer Your Pension
There are several reasons why you might like to consider a pension transfer. These include:
You have pensions in a number of different places:
If you have had lots of jobs in your lifetime, you might find that you have a number of different pensions. In this case, you can look at consolidating your pensions. This will allow you to place everything into one scheme so that it is easier to access and manage.
You’ve found a better deal elsewhere:
Whether you have arranged a defined contribution pension or are a member of a final salary pension, you might decide that you’ll receive better options for your objectives or better returns elsewhere. Additional considerations here could be a scheme that provides greater flexibility or is cheaper in cost.
You’ve moved abroad permanently:
Whilst having access to a private pension in the UK can be useful, local schemes or international schemes might be more beneficial from a tax perspective. Alternatively, you might want to move your money to a SIPP or QROPS, so that you have flexibility and control over your assets, no matter which country you are residing in.
You are a deferred member of a final salary scheme and reductions are being made to future benefits, or an increase in your normal retirement date.
Final Salary scheme in deficit:
Your final salary scheme may be in deficit and you are concerned it may not be able to meet its obligations.
You risk breaching the Lifetime Allowance:
It may be advisable to transfer if you are going to be affected by the Lifetime Allowance. In some cases, it may be possible to reduce LTA tax charges by transferring.
Potential tax advantages and the use of Double Taxation treaties
You are seeking more control over your pension and what it is invested in.
Things to Check Before You Make a Pension Transfer
There are a few things you will want to check before you settle on a new pension scheme. Make sure you fully understand all costs involved. Including initial set-up fees, annual management and administration charges, and any charges that may occur because of a withdrawal. You should also take note of any trading fees. Also, keep an eye out for potentially hidden fees embedded into fund charges.
If you are looking to consolidate pensions, there are other considerations to make. A consolidated pot may be easier to manage, but it doesn’t make sense to move pensions from accounts with low costs to one with higher costs, just for convenience.
You should also make sure that your new pension scheme allows you the same, or better, pension rewards and this is not necessarily just better returns. These include things such as tax-free lump sums and death benefits.
Don’t Dismiss Exit Charges
Some pension schemes UK will impose exit charges for pension transfers. They are not allowed to be more than 1% of the pension amount but this may be worth taking into consideration when deciding whether to move or not.
Final Salary Pension Transfers
The FCA (Financial Conduct Authority) requires firms advising on pension transfers to have specific permission for advising on pension transfers and opt-outs.
If the value of your pension assets in a defined benefit scheme (final salary) is valued at more than £30,000, the Government rules require your pension provider to ensure that you have taken regulated financial advice before allowing the transfer to proceed.
This regulated advice must come from a pension transfer specialist, who has the requisite permissions to be able to give advice in this complex area. A pension transfer specialist must follow the FCA’s training and competence rules, have the appropriate pension transfer specialist qualification and, with that, the permission to perform the function.
Your suitability to transfer your pension will be based on your own set of personal circumstances and your financial objectives for retirement.
What does a pension transfer cost?
The fees for financial advice relating to pension transfers will vary. Often it will depend on the complexity of the case, whether it is a final salary or defined contribution scheme you are transferring from and whether there is more than one scheme. Typically, you will pay a fee for the advice and then an upfront fee and ongoing annual management fee
It can be confusing to take all the different fees and charges into account. If you are unsure, please seek professional advice.
Your pension is an asset, just like your home, and other investments. So, when you die, you’ll want to make sure that your family and loved ones are able to make use of anything that you have left in your pension pot.
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