Pension Transfers

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What is a Pension Transfer?

A pension transfer is the process of transferring or switching all your contributions from one pension scheme to another.

There are many reasons why you may wish to transfer your current pension to a new or different scheme. It could be that you have decided to change your job – often seen as the most beneficial time to change pension schemes – or you may be unhappy with the benefits, performance, fees or security of your current pension scheme.

How is a Pension Transfer carried out?

To transfer your pension you will need to write to your current pension scheme administrator requesting a statement of transfer value. Within 12 weeks of making the request you will be given a transfer value for your pension, which will be guaranteed for 3 months.

It is important to note that the way in which the transfer value of your pension is calculated varies depending on the type of pension you want to transfer from:

• Final salary pension – a final salary scheme guarantees you a pension that is a fixed percentage of your final salary, i.e. your income at retirement.

• Money purchase pension – with this type of pension, your contributions to the scheme are added together and the total sum is used to purchase an annuity when you retire. This provides a guaranteed income for the rest of your life.

Transferring from a final salary pension

If you are transferring from a final salary pension, the transfer value will be based on an assessment of the amount of money you would need to contribute (at the time of the transfer) to provide you with your pension entitlement under the final salary scheme. This transfer value will be guaranteed for 3 months.

The guarantee date will be shown your statement.

Transferring from a money purchase pension

However, if you are transferring from a money purchase pension, the transfer value will be calculated based on the current value of your contributions. It is important to remember that because these are typically invested in stocks and shares, the total value of your contributions can change depending on market conditions

. If the value of your contributions changes after you receive your initial statement of transfer value, then you could find that the actual transfer value of your pension is higher or lower than what you originally expected.

It is also important to note that this transfer value may not be guaranteed at all. This will be detailed in the small print of your statement. 

If you decide to go ahead with the transfer, you will need to make a written application to your pension scheme administrators, who will then be obliged to complete the transfer within 6 months of your request.

Can I transfer any type of pension?

Almost all types of occupational and private pensions can be transferred, but there are a few exceptions, particularly for public sector workers.

For example, you won’t be able to transfer if you left a public sector pension scheme before 1st January 1986, or you are within one year of your pension scheme's retirement age.

Another exception is if you are a member of a final salary pension scheme that provides a pension that grows in line with inflation.

Are there any charges involved?

Some pension transfers come with fees attached. These charges can amount to several per cent of your transfer value and are usually deducted from your transfer value at the time of the pension transfer.

Before deciding whether to transfer your funds, you should consider whether the benefits of your new pension are worth the transfer fees.

Seek professional advice

Pension transfers can be a highly complex area as there are many issues to consider before deciding whether a transfer will benefit you.

To help you weigh up the pros and cons of a pension transfer you should seek professional advice from an Independent Financial Adviser (IFA). IFAs have access to all the information you need to make an informed decision.

An IFA can help assess your case by:

• Analysing the financial position of your present scheme
• Analysing the risks of the alternative pension plan
• Providing a transfer value analysis - a computerised calculation which allows you to compare the benefits of your current pension plan with an alternative scheme

Once your case has been examined, they will then advise you as to what your options are and the most appropriate course of action.

Remember, IFAs are regulated by the Financial Services Authority (FSA) and are therefore required to offer customers impartial advice based on their individual circumstances.