Planning your retirement can make all the difference to achieving your goals, and one important tool to help your plans stay on track is the Pension Transfer.
In this insight, we will explain how a pension transfer can be arranged, the reasons why you might transfer your pension and how to seek pension transfer advice.
A pension transfer refers to the process of moving your pension savings from one pension scheme to another. This typically involves transferring your pension from an existing provider or scheme to a new one.
A pension transfer is one part of retirement planning, a financial adviser might help you transfer your pensions to help you achieve your retirement goals. Pension Transfers are also suitable for self-employed pensions.
There are a few reasons why you may need to consider a pension transfer. The most common reason would just be for consolidation. Having tidy pensions make management much easier. Other reasons to consider a pension transfer include:
You can get independent pension advice from a Financial adviser. They can review the performance and charging structure and make a recommendation on whether you should consider completing a transfer, assisting with the administration behind that.
If moving your pensions has been on your mind for some time, but you just aren't sure what is involved, do not worry. We have broken down the steps for you below.
Before deciding to move your pensions, you need to gather the required information to make an appropriate decision. Start by identifying the pensions that you have. This can be workplace pensions or personal pensions. If you have lost track of your pensions you should begin by contacting your previous employer. If that does not work out you can use the free pension tracking service provided by the government. More details on how to do this are covered below.
Once you have the details of the pension providers, you can contact them to enquire about the details of your pension. This should include:
This is the amount your existing pension scheme will pay to your pension provider if you move to a different scheme. If you are having early discussions with a Financial adviser, it will be ok to provide an approximate value.
Pension providers charge ongoing management charges, these are normally taken straight from your fund. These fees can begin to stack up year after year. There may be opportunities to save by considering a transfer.
What is the charge that will be added if you proceed to move your pension? You will often be charged to move your pension away from a provider. There will be no fees to move into a new provider's scheme.
This detail is going to be required if any transfer is to be arranged.
Before speaking to new providers and having a pension review you will need to give thought to what is important to you when it comes to your retirement. You should consider what you want to achieve from your retirement planning and whether you may be on track to achieve that. Think about:
When are you seriously thinking about retiring? You will need to choose an age that is realistic for you to continue working as well as finding an age that allows you to have the retirement that you plan.
This can include any long-term debts you will paying, such as Mortgages, or even if you are not a home-owner, what rent will you be paying? Any other ongoing costs you will need to account for.
State Pension is provided by the Government and the amount you are entitled to will depend on the number of years of national insurance contributions you have made. Knowing how many years of contributions you will have, as well as your state pension age can make a difference to when you can afford to retire.
You should understand that if you transfer your pension that it might not guarantee you a higher income or larger pension pot. The value of your pension will go up and down and you could end up with less than you invested. However, moving your pension pots into one combined pension should make it much easier to manage and may reduce ongoing management charges. Consider what is important to you.
Talk with a Financial Adviser. Financial advisers are specifically qualified in offering pension advice. They take the time to understand your needs and what is important to you. They will listen to what your thoughts on the points above and make an appropriate recommendation for you. Some advisers will be tied to one provider whilst others will be able to review a panel of pension providers which may provide greater flexibility. Financial advisers will also take on a lot of the administrative tasks for you. If you decide to proceed, they will arrange with the new provider to move the pensions on your behalf.
Once you have made your decision on how to proceed, depending on how many pensions you have and the types you are transferring, it can take up to 10 days to 3 months to complete. Your Financial adviser will keep you updated at each step of the transfer.
People have been arranging pension transfers for many years. Some of the common considerations to be aware of when transferring pensions are listed below:
Since the addition to the law of auto-enrolment (being automatically placed into a workplace pension), and the many times that people change jobs, it's much easier to have a lost pension.
According to data released by the Pensions Policy Institute, the pandemic is likely to have accelerated job changes, there is more evidence people have moved homes since 2018, both of which adding to reasons why more pensions are becoming lost.
The estimated figures provided for the average lost pension currently sits at an estimated value of £9,000.
The good news is Pension dashboard services provided by the Pension Tracing Service will be introduced within the next year. This will allow you to view all your pensions online in one place.
In the meantime, contact your old employers, look through old paperwork. If you still have no luck, you can use the existing pension tracing service. This is available online, provided by the government. It searches a database of 200,000 personal pension and workplace schemes.
If you have a defined benefit scheme worth over £30,000 and are considering transferring this to a defined contribution scheme, the law requires that you must take advice on giving up your defined benefit.
Should you proceed with a transfer after understanding the lost benefits, your adviser must confirm to the trustees of your defined benefit scheme that you have taken advice. Only after this has happened can the transfer proceed.
You must use a Firm that is authorised by the FCA to offer Defined Benefit transfer advice.
You are able to move your pensions to another registered UK pension scheme and you will not lose any of your tax benefits. If you decide to move your pension anywhere else, it is considered an unauthorised lump sum. This is an unauthorised payment and you will have to pay tax on the transfer. It is therefore important to ensure you are seeking advice from a verified FCA adviser.
Be aware that you may lose some benefits of moving your pension, this could include any right you had to take the pension at a set age, losing any protection you had, and you may have to pay a fee to make the transfer.
Transferring pensions when moving abroad must be into a 'QROPS'. This is a 'Qualified Recognised Overseas Pension Scheme'. If the scheme you select is not a QROPS, your UK pension provider may refuse to make the transfer, or you will have to pay at least 40% tax on the transfer.
Whether you pay tax moving your pension abroad depends on where the new QROPS provider is based. This is your responsibility to find out.
As this can become complicated, it's a good idea to seek advice on international wealth management. International wealth management services can provide assistance and advice around international pension transfers and transferring into a QROPs.
If you choose to move your pensions you should still be able to retain your 25% tax-free lump sum when you decide to cash in your pension. This amount should not be impacted by any transfers you have arranged. However, there are some circumstances where this can apply. When arranging a transfer to confirm the impact, it is best to speak to your new and old pension provider.
It is possible that you may lose the 25% tax-free lump sum benefit if you have not transferred to an approved regulated pension provider. This can specifically be the case if you move your pension abroad to a non-QROPS provider.
Some older pension schemes have a tax-free entitlement of more than 25% of the value. This is known as Scheme specific lump sum protection. This benefit can be lost upon transfer. To be certain that your 25%, or more, tax-free lump sum will not be impacted you should contact your new and old pension providers to confirm the treatment.
If you're considering arranging a pension tranfser, but unsure how to start, complete the Sunny Fact Find. The answers you provide help us to find the best-suited adviser for your needs. Your adviser contacts you to discuss how they can help, you decide how to proceed.
Stuart is an expert in Property, Money, Banking & Finance, having worked in retail and investment banking for 10+ years before founding Sunny Avenue. Stuart has spent his career studying finance. He holds qualifications in financial studies, mortgage advice & practice, banking operations, dealing & financial markets, derivatives, securities & investments.
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