This page was last updated on 1 December 2020.
Can I transfer my pension myself?
Many people start looking into their current pension scheme and find themselves unsatisfied. It’s a natural response to want to transfer one’s pension somewhere else.
Maybe a personal pension appeals to you, or perhaps you want the peace of mind of a guaranteed annuity. Maybe you’re thinking about consolidating pensions by transferring them into the same scheme.
Plus, some want to move from defined contribution pension schemes, while others are unsatisfied with their final salary plan. Others want to transfer from one company pension to another.
Pensions transfer can be a tricky business, though. Sometimes a transfer is just not an option. Others are possible but ill-advised or risky. Whether you can do it all by yourself depends on what plan you’re transferring out of as well as what scheme you’re transferring into.
This article will guide you through the pros and cons of different decisions, as well as the rules that apply.
Topics that you will find covered on this page
You can listen to an audio recording of this page below.
What are the usual reasons to transfer pension?
- Some expats want to move to a new scheme to reduce the overheads of sending money across borders.
- If you want to consolidate pensions, there are a number of upsides to transferring. The main advantage of combining pensions is avoiding the hassle of a portfolio of different schemes.
- Some people want to open a personal pension. They may be seeking higher returns in the stock market, or greater control over contributions and withdrawals.
- Maybe your current scheme has exorbitant fees, and you can get a better experience on the open market.
Can I transfer a defined benefit pension, such as a career average or final salary scheme?
You might not be able to transfer your defined benefit pension scheme. Indeed, sometimes you can get a cash bonus for transferring out of DB schemes. This is because providers want to limit their future liabilities.
If you are already taking withdrawals (it is a ‘pension in payment’) then a transfer is not possible. Nor is transferring your pension possible if you are part of most public sector schemes.
This is because there is no pension fund out of which you can transfer cash. Pensions are paid out of the income of the organisation. The same applies to many company pensions.
The Financial Conduct Authority advises against transferring out of a final salary pension scheme. This is because there are a lot of upsides to final salary pensions. One advantage is that if your salary rises later on in your career, you get higher pension benefits. And most defined benefit schemes allow you to nominate a spouse or family member who will receive benefits too.
Here is a video on what to think about when transferring.
Can I transfer from a defined contribution pension scheme?
If your company scheme is of this type, you’re in luck. In a defined contribution scheme, pension pots are invested in assets which may be sold or transferred to another plan quite easily.
So most of the time, you can transfer out of a defined contribution pension yourself. Plus, there are few special benefits attached to this type of scheme, so there is often no reason not to transfer.
Will I have to consult a financial adviser if I want to transfer my pension?
Sometimes if you want to transfer pensions, advice is compulsory. This depends on the Cash-Equivalent Transfer Value of your defined benefit pension. Pension transfer values are a way of measuring the overall size of a pension pot which may be invested in assets that don’t have an easily estimable price.
With defined benefit pensions, transfer value is more complicated to calculate. The transfer value of a defined contribution scheme is more or less its face value.
If the transfer value of your defined benefit plan totals £30,000 or more, the transaction must be handled by a financial adviser. The same applies to transferring from defined contribution schemes. This is part of the April 2015 package of pension freedoms.
Why will I be obligated to seek financial advice?
Sometimes it is a statutory requirement to consult with a financial adviser before proceeding with planned pension transfers. You might find this inconvenient, as financial advice can be very expensive. You might not think you need a financial adviser at all.
Unfortunately, though the current advice system doesn’t work perfectly for everyone, it was put in place to protect those vulnerable to scams. From the government’s perspective, it’s hard to tell the difference between those who are capable of managing their own money and those who are not.
The simplest solution is to make sure everyone seeks financial advice with large pension transactions. But don’t despair- you might benefit from financial advice even if you’re a seasoned investor.
What are the benefits of consulting an independent financial adviser before making pension transfers?
Even if you don’t think it is worth the money, you might well benefit from the services of a regulated financial adviser. When you’re transferring, pension schemes can be highly complex. You risk paying hidden costs if you don’t take pension transfer advice.
The terms and conditions of different investment options come with various risks, and it can be hard to find the best pension provider. Pension transfer specialists can help you shop around, so their expert tips and advice can be worth the off-putting charges. Think of their advice as an investment, as you will gain overall from finding the best scheme out there
Can I transfer my pension to a savings account?
Strictly speaking, you cannot transfer a pension to a savings account. You can of course begin to withdraw funds once you have reached retirement age. If you choose to withdraw a lump sum and place this money in a savings account, this is your prerogative. The first 25% of your pension can be withdrawn as a tax-free lump sum.
But in withdrawing money and placing it in a savings account, you are not technically transferring it. This is because a pension transfer- for example, when you move money from a defined contribution scheme into a SIPP- does not count as a withdrawal, and does not incur tax penalties. You can also transfer pensions before you reach retirement age, whereas you cannot make withdrawals.
It’s important to understand this difference, as you could end up with a big tax bill, or you might be too young to withdraw your pension anyway.
For many reasons, it’s not a great idea to withdraw your pension and place it in a savings account, unless you intend to spend it in the near future. The tax cost is a big factor.
Normal savings accounts tend to yield a very poor rate of interest, so inflation will eat away at your money. Also, if you want to place the money in an ISA so as to make investments and manage it yourself, a SIPP has many of the same features.
Can I transfer a workplace pension to a Self-Invested Personal Pension?
Yes, in most cases you can move the funds in your workplace pension into a SIPP and manage them yourself. It is usually easier to transfer a defined contribution scheme, as opposed to a defined benefit scheme.
Either way, you will have to ensure that your company scheme offers this option, as not all do. Again, they are legally obligated to inform you of your options, and they should provide a transfer value estimate.
Transferring a pension into a SIPP is one of the easiest ways to transfer a pension, as your money will all be in one place. Plus, since transferring to a personal pension scheme doesn’t count as a withdrawal, you won’t suffer any nasty tax penalties.
Before deciding to transfer your workplace pension into a SIPP, you should make sure it’s the right option for you. A SIPP can be a big responsibility, as you will be responsible for managing where your pension pot is invested. Do your research into investment strategy, and take advice before making a big decision.
A SIPP can be much more flexible than most workplace pension schemes, with more investment choice as well as a range of investment funds for every level of expertise. You could get free pension advice from your personal pension (SIPP) provider too.
Can I transfer from my current pension plan to an annuity? When is this a good idea?
It is often possible to transfer to an annuity, particularly if you are part of a defined contribution scheme. This is often a normal part of your pension plan- many defined contribution schemes expect you to spend your savings on an annuity when you reach retirement age. It is comparatively less common to transfer from a defined benefit or final salary scheme into an annuity.
Annuities are a good option if you want a secure retirement income. A guaranteed annuity rate is something you can rely on, though you might get better returns and more flexibility elsewhere. Annuity rates vary, but you can generally get a personal estimate online.
Can I transfer my pension to someone else?
You cannot transfer your pension to someone else, except in a few cases. Part of your pension pot may be transferred to your ex-spouse if you get a divorce or dissolve your civil partnership. This is called a pension credit or pension sharing order. But you cannot transfer your pension to your spouse at your own discretion.
There are a few options if you want to use your pension to help out a loved one financially. You can simply withdraw cash from your pension pot and give it to them as a gift. Bear in mind that only the first 25 percent of your pension can be taken out without incurring a tax bill.
You might also be liable for gift tax if you give a loved one a large enough amount. Like if you withdrew money to place in a savings account, this is not technically a transfer and is not possible prior to the retirement age.
There is another way to use your pension to help out a friend or family member. It may be possible to use your pension pot to buy an annuity. If it is, you can include a loved one in an annuity in various ways.
Some annuity providers allow you to name dependents who will receive a guaranteed income alongside you. You could also pay extra for death benefits, so that they gain an income stream or cash sum if you pass away.
If you are part of a defined benefit scheme, you can often ask for a spouse to receive benefits should you pass away. Many such schemes will pay out the cash value of your pension in this case, or at least part of it. So your family may be protected anyway, meaning you needn’t bother transferring your pension.
What if I’m emigrating – is it possible to transfer a pension abroad?
Some retirees are attracted to the idea of transferring to a foreign pension scheme. This is because many companies charge you higher rates if your pension income is going into a foreign bank account. But a foreign pension scheme may not be recognised by your scheme administrator.
Your new pension will have to be a Qualifying Recognised Overseas Pension Scheme. You can ascertain whether this is the case by consulting your current scheme. Some financial advisers may be able to perform this service for you.
If the new pension is unrecognised, the implications are serious. Transfers to such providers incur a punitive tax liability, as it is counted as a withdrawal. This can seriously eat away at your pension value, and you may be taxed again when you reach your new home. Readers should steer clear of this option.
How do I know if I have forgotten pension pots I can transfer out of?
A surprising number of people are entitled to retirement benefits from previous employers, but have lost contact or forgotten about them entirely. Maybe the company was acquired or went into a merger, or the individual moved to another part of the country and simply forgot all about it.
Millions of pounds are sitting in defined contribution pensions and defined benefit pensions waiting to be withdrawn. But how do you know if you are entitled to some of this money?
You can take advantage of the public pension tracing service, which is free-of-charge. A pension specialist will ask you about any job you had in the past which might have entitled you to benefits. With most pensions, you will have to have been an employee of a company for an extended period.
I am the primary writer and author for Help and Advice, having originally helped start the site because I recognised that there was a need for easy to read, free and comprehensive information on the web. I have been able to use my background in finance to produce a number of articles for the site, as well as develop the financial fitness score tool. This is a tool that provides you with practical advice on improving your personal financial health.
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