Pension Transfer Considerations

We have produced the following notes to help you decide if you should transfer your pension. However, please note that this does not constitute advice. If you want advice this is available from our Financial Planning team on a fee basis.

a. Costs

Is the new plan more expensive than your current plan? Does your current plan provider impose any exit penalties or charges if you transfer or cease contributions? The benefits of the new pension and service should outweigh any increase in cost or be worth the fees / penalties incurred.

b. Guaranteed Annuity Rates

Does your existing pension plan provide an entitlement to a Guaranteed Annuity Rate? The guaranteed rate may be much higher than the rates available on the open market when you retire.

c. With-Profits

Has your current pension got exposure to a With Profits fund? You may have attractive bonus rates that could be lost on transfer. Moreover, the transfer value may be subject to a Market Value Reduction, which will reduce the size of your pension fund.

d. Other benefits

Does your existing pension scheme provide life assurance, waiver of premium (a form of premium insurance) or the option of an early retirement age?

These may be lost on transfer. Any subsequent deterioration in your health, since these additional benefits were provided, may mean that replacement cover will be more expensive or difficult to obtain.

e. Protected Rights

Does your current plan contain protected rights (contracted out National Insurance rebates)? Why did you initially contract out? Should you be considering contracting back in?

NB: The FundsNetwork SIPP can accept contract out policies but is unable to accept ongoing National Insurance rebates. If you wish to continue to contract out, you will need to open a new personal pension plan to accept your future contributions, otherwise you will automatically be contracted back into the State Second Pension.

f. Income Drawdown

Is your current pension in income drawdown or are you considering income drawdown?

Income drawdown is a way of to defer using your accumulated pension funds to purchase an annuity until you reach the age of 75. Between retirement age ( currently age 50 but increasing to age 55 from April 2010) and age 75 you can, within set limits, access tax-free cash and draw an income from your pension scheme.

Income drawdown is not suitable for most people and the arrangement should be kept under regular (at least yearly) review.

The costs attached to income drawdown are higher than the normal charges within a SIPP.

Generally, it is advisable to seek advice when considering income drawdown.

g. Occupational Pensions Schemes or Section 32 policy

Do you have a Final Salary Pension Scheme or a Section 32 policy?

It is generally not advisable to transfer benefits built up in a Final Salary Pension Scheme.

Some occupational schemes (money purchase or final salary schemes) will allow you to take more than a 25% tax free lump sum on retirement.

You may lose advantageous benefits by transferring out of a Section 32 policy.

You should seek independent financial advice before making a decision to transfer.

h. Approaching Retirement

Will the length of time your fund is invested offset any cost or lost benefits?

i. Transfer Timings

During the period between the sale of the existing investments and the purchase of the new investments are you happy to lose market exposure?

There may be a significant change in market values between the sale of an existing pension's investments and the purchase of new investments and you will not benefit from any rise in markets whilst your pension fund is not invested.

j. Finance Act 2009

If your total income from all sources (including investment income) exceeds £150k (or has done in 2007/08 or 2008/09) you could be affected by the provisions of the Finance Act 2009, which restricts marginal tax relief on pension contributions. If you are contributing regulary to the pension plan and you are considering transferring you should seek advice as the transfer could affect your right to continue to enjoy higher tax relief.

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