Transferring your pension? What you need to consider
The performance of your pension investments is likely to have a significant impact on the amount of money you have in retirement but unfortunately too many pension funds underperform. Because of this many people are choosing to transfer their pension investments to different pension providers. Everyone has the right to do this and in many cases it is an excellent way to give your pension fund a real boost. However, there are a number of important points that everyone should consider before making the decision to transfer a pension.
Is the new plan more expensive than your current plan? Does your current plan provider impose any exit penalties, loss of bonuses or charges if you transfer or cease contributions?
The benefits of your new pension arrangements and service should outweigh any increase in cost to you or be worth the fees/penalties incurred. You should ensure that the transfer is not going to disadvantage you financially.
2. Guaranteed Annuity Rates
Does your existing pension plan provide an entitlement to a Guaranteed Annuity Rate or a Guaranteed Investment Return?
Some pensions have inbuilt guarantees of investment growth or annuity rates; these will be lost on transfer.
Does your current pension have exposure to a With Profits fund?
You may have attractive bonus rates that could be lost on transfer. Also, the transfer value of With Profits funds may be subject to something called Market Value Reduction, which will reduce the size of your pension fund available to transfer.
4. 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.
5. Final Salary Pensions Schemes, Section 32 policies and other Occupational Pension Schemes
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 or Section 32 policy. Other Occupational pension schemes (including Executive Pension Plans) should be similarly checked carefully to ensure that valuable benefits are not being lost. In particular, you should check the amount of tax-free cash your current pension allows you to take, which may exceed the 25% limit allowed under normal pension rules.
6. Approaching Retirement
Will the length of time your fund is invested offset any cost or lost benefits?
If you are close to retirement it may not be worth considering a transfer; ask yourself whether the new service will provide the options you require in retirement.
7. Transfer Timings
During the pension transfer period you may be exposed to fluctuations in the value of your pension due to market volatility.
Pension transfers can sometimes take a while to complete. There may be significant changes in market prices during this period which may affect your pension value, in particular you will not benefit from any rise in markets whilst your pension fund is not invested.
Why not spend five minutes on the phone with one of our friendly pension experts? We have years of experience helping clients make the most of their pensions and can talk to you about the benefits of combining your pensions into one and explain how we can help you. We don’t use jargon or overcomplicate things so we won’t waste your time and if you decide to move to the Best SIPP, we will take care of all the paperwork for you. Call us on 020 7189 2400 or email firstname.lastname@example.org