How Can I Transfer My Pension?

There are several reasons why you might want to transfer your pension. Perhaps you have changed jobs, been made redundant or you are simply not happy with how your pension fund has been performing and think you could manage the investment better yourself.

However, transferring your pension is not always the best option. Transfers can be time consuming, costly – in terms of exit penalties and switching charges – and you may find yourself worse off.

If you are thinking about switching, here’s what you need to bear in mind before you make a decision.

What Sort of Pension Have You Got?

Think carefully about your current pension and whether your employer offers you particular benefits that would be worth keeping. For example, public sector pension schemes carry excellent benefits that are not available through most pension schemes. Pensions for nurses and teachers and other public employees are guaranteed against rising inflation.

Even if you have left the profession, you would be advised to keep the pension where it is because you won’t be able to find a personal pension with the same flexibility.

If your employer is still paying into your company pension, it may not be worth transferring to a private pension. In order to maintain your pension contributions you’ll have to make up the shortfall left by your employer.

Switching Because of Poor Performance

It’s an unavoidable truth that some pension funds provide disappointing returns that leave their investors with a smaller pension pot than they had expected.

Poor performance is usually down to one of two things, bad decision-making on the part of the investment manager, and excessively high administration charges that eat into the fund’s capital.

You may decide that after shopping around you can find a personal pension with lower running costs and a better selection of funds in which you can choose to invest. Always remember though that past performance is not a guide to the future.

Obtaining Good Financial Advice

It makes sense to talk to a fully qualified Independent Financial Adviser (IFA). They will be able to talk to you about your current situation, any concerns you might have about your pension, and carry out the necessary research to determine whether you should transfer your pension.

They will also be able to undertake a ‘transfer value analysis’. This includes writing to your existing pension scheme and asking them what the value of the pension would be should you decide to transfer. Be mindful that it may take some time before you get an answer from your pension provider - they are notoriously slow at providing transfer details. Your IFA will also advise you of any exit charges you will have to pay, and determine whether you would benefit by switching.

Deciding to Stay Put

Your IFA may tell you that you are better off keeping your pension with the existing provider, because the costs of switching outweigh the benefits. The average cost of a pension transfer is roughly 5 percent of the total pension fund, So, if, for example, you have a relatively small amount in your pension fund (below £10,000) it would be advisable to keep the money where it is.

At the other end of the spectrum, if you only have a few years left until you retire – ten years or less - it may not be worth switching, unless you are doing so to avoid receiving a low annuity rate.

Additional Benefits

Before you switch, think about the additional benefits that your current pension offers, such as death benefits, which you may have to pay extra for if you transfer into a personal pension.

Transferring your pension can be a costly and time-consuming business, so it’s a decision not to be taken lightly. If you think that you would still benefit from switching, talk to an IFA who can give you all the information you will need to make the right decision.

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