April 2024
Pension Transfer Charges & Fees in April 2024
If you have workplace pensions from multiple employers, you may be considering transferring your pension pots into one pension. This guide tells you everything you need to know about pension transfer charges. It guides you through answers to some of the most frequently asked questions about pension transfer fees and pension freedoms. It tells you:
- How much pension transfer advice costs
- When you are legally required to speak to a pensions adviser
- The exit fee and any other pension transfer fees you will have to pay
- Whether you should transfer your pension
- If it’s possible to transfer your pension to another person
- How to spot pension scams
Topics that you will find covered on this page
You can listen to an audio recording of this page below.
What does pension transfer advice cost?
Thinking about what does pension transfer advice cost is, will lead you to look at the range of fees you could face. When you budget for transferring pension funds, you should consider charges for:
- Exit fees
- Administration costs
- Adviser charges
These pension transfer charges can make a big difference to the size of your pension savings and investment. So, it is important to consider these decisions carefully.
One of the biggest expenses involved in pension transfer charges, aside from the actual advice cost, can be exit fees. Exit fees are when your current pension provider charges you to move the money from your pensions into another scheme. The money for the fee is deducted from your pension funds and usually apply to defined contribution, or DC, schemes.
Sometimes, exit charges will be a fixed fee. You might find that another of your pension providers charges you a percentage fee of your pension instead. This means that if you have a large pension, you will have to spend more on the transfer charges.
Another key matter to consider is the cost of pension transfer advice. In many cases, you will be legally required to speak to an adviser before going through with the pension transfer.
Watch this video about pension transfer charges
Pension transfer fees
The cost of pension advice will depend on the size of your pension pot, how many pensions you would like to transfer, and the type of scheme you currently have.
The fee structure usually takes the form of a percentage figure. For defined contribution schemes, the fixed fee pension transfer advice is usually charged at a maximum of 5% of the cash value of your fund.
You may also need to pay an extra 1% as an ongoing fee for a regular review.
Here is a video about transferring your pension.
You should take the percentages prices of independent advisers into account when working out your pension transfer costs.
You should be able to pay the pension transfer charges and the advisor fee using the cash from your pension balance. You won’t need to use money from your own pocket.
Always check that you are speaking to a professional pensions specialist authorised and regulated by the Financial Conduct Authority (FCA). Read below for more information about pensions scammers.
Fixed fee pension transfer advice
Fixed fee pension transfer advice is available, if you ask for it. In fact, our recommendation would be to always ask for a fixed fee, rather than a fee related to the size of the pension transfer value.
Most advisors will be able to quote you a fixed fee, whether it is a defined contribution (also known as money purchase) or a defined benefit (also known as a final salary) pension transfer.
Fixed fee final salary pension transfer advice
When it comes to final salary pension transfers, it is really important to ask for fixed fee pension transfer advice. This is because a pension transfer value, from a final salary scheme, can easily be in the hundreds of thousands. Therefore, paying a fee based on a % can easily get your pension advice costs into the thousands of pounds.
If you look at the details of the advisors at the bottom of the page, they will be able to give you a fixed fee, whereas many other advisors will not.
What is contingent charging?
Contingent charging is a way of pricing advisory services for pension transfers. The pricing model works by only charging customers after they have acted on the company’s recommendation to transfer a pension.
In 2020, the FCA has banned contingent charging. The single biggest reason for this ban is that pensioners were being advised to transfer pensions out too often in order for the company to be paid.
The new pensions pricing rules are designed to fix the imbalance in the data and make sure that pension holders are receiving the best guidance about their options.
Should I get pension transfer advice?
Yes. If you might want to transfer a pension fund, it’s likely that you will need to get professional guidance under UK law. This is because there are many risks and implications involved with pension transfers.
In some situations, speaking to a specialist pensions adviser is a legal requirement:
- If you have a defined benefit pension worth more than £30,000.
- If you have defined contribution pensions valued at £30,000 or more that includes a guaranteed annuity rate.
During your consultation, you will be asked personal questions by the adviser. This is so that they can examine and research whether transferring your pension makes sense and is best for your finances in the long term.
A pension transfer is not right for everyone as it carries risk and can have a big impact on your life further down the line. Keep in mind that for the majority of people, it will not be recommended that you transfer to new pension providers.
"Contingent charging is a way of pricing advisory services for pension transfers. The pricing model works by only charging customers after they have acted on the company’s recommendation to transfer a pension."
How to find pension transfer specialists?
You can find pension transfer advisers by looking at the FCA’s list of approved advisers online.
Every pensions specialist must be authorised and regulated by this trade body.
Should I transfer my pension?
There are several reasons why you might want a pension transfer. For example:
- To save money by paying one management fee instead of several management fees
- To improve your investments to the level of your expectations
- To simplify your experience of making pension contributions
- To be able to bring your savings with you when you move abroad
But a pension transfer is not the right course of action for everyone. If you transfer your pensions, you may encounter a range of disadvantages:
- You might lose your entitlement to benefits that you have accumulated, such as a guaranteed annuity rate or life cover.
- You may need to pay exit fees.
- You will need to pay charges for pension transfer advisers.
- Because of these pension transfer charges, the amount of money you have in your pension savings will be reduced.
- Switching from a defined benefit scheme to a personal pension means that the investment risk will switch sides and fall on your shoulders.
- You could lose out on retirement age bonuses.
- If you currently have a protection in your plan meaning that you can withdraw more than 25% tax-free cash, then you could lose this by switching scheme.
- Once you have signed the paperwork, it can be very difficult to put your money back into your old plan if you change your mind.
You can read more about the pros and cons in question here.
What happens if I transfer my defined benefit pension?
When you transfer pension pots from a defined benefit pension, your accumulated benefits are converted into a Cash Equivalent Transfer Value (CETV).
Your cash pensions transfer value will then be moved to a scheme with another pension provider. Usually, your funds will be put into a defined contribution pension.
One of the factors you should remember when considering a pension transfer is that you may lose key features from your old pension deal. For example, you might lose the guarantee of a salary raising in line with inflation.
In the UK, the Financial Conduct Authority (FCA) rules state that you can only transfer final salary pension pots after you have received financial advice from an approved, independent money expert.
You must receive a written confirmation that a pension transfer is recommended for your personal financial situation and retirement aims.
Can I transfer my defined benefit pension?
The answer about whether it’s possible to transfer a final salary pension depends on:
- Your pension provider rules
- Whether you are already taking income from your final salary
- If you work in the public sector
For example, it is not possible to transfer your pension from the defined benefit schemes for Teachers, the NHS, or the Civil Service.
However, other defined benefit schemes allow final salary pension transfer. You should contact your benefit pension scheme administrators to check what is allowed under their terms.
Should I transfer my defined benefit pension scheme?
Maybe. You’ll need to think carefully about whether a defined benefit pension transfer is right for you.
It’s important to get advice on pension transfers before making any decision about transferring your pension. In some cases, speaking to a pension specialist is in fact a legal requirement.
For example, if you want to transfer a pension from a DB scheme worth more than £30,000 then you must get salary pension transfer advice from an independent financial adviser. This is the law.
In many cases, the pension transfer specialist will not recommend leaving your current pension due to exit fees or the loss of valuable benefits. This is because leaving pension schemes with these features poses a risk to your quality of life in retirement.
If you are unsure about the risk warning or have any questions about pension transfers, you should seek financial advice.
What is a pension transfer value?
For defined contribution pensions, a transfer value is simply the amount of money that your current pension provider will pay to your new provider’s plan.
For defined benefit pensions, you will be given a Cash Equivalent Transfer Value (CETV). This is the amount of money that you will get from transferring pension funds from a defined benefit scheme into a defined contribution or personal stakeholder pension.
The CETV is calculated by estimating how much the provider would need to pay in today’s economy to be able to provide the final salary you have been promised to receive in the future. This can be around 20-40 times the income you will be owed in retirement.
Your CETV that you get is then given to use as investment funds. You can put the money into a defined contribution scheme, or invest it into a personal pension.
In both cases:
- Any exit fees will be deducted from your savings to calculate your transfer value
- You may also lose any kind of benefits that you have with your current scheme
Can I transfer my pension to another person?
No. It is normally not possible to transfer pensions to another person. Part of the reason for this is that your pension savings are personal.
However, there are two exceptions to these restrictions:
- If you are getting divorced from your spouse or dissolving a civil partnership, then the couple can access money from pensions as part of the separation process.
- You can nominate loved ones as trustees to inherit cash from your pension pot in the event of your death.
Can I transfer my pension to my wife?
You cannot use a pension transfer to give someone else your pension funds. However, you can nominate beneficiaries to inherit the money from your pension pot when you pass away.
This person can be your husband, wife, or civil partner if you wish. Most pension plans give you the option of naming someone to inherit your interests and capital when you die.
If you would like to start planning for these circumstances, all you need to do is call your pension provider and make an enquiry. They will ask you to provide them with the most up-to-date details of your trustee.
Remember that your beneficiaries might need to pay income tax on the pension funds that they inherit from your plan. Whether they are taxed will depend on the age at which you pass away as well as the type of pensions you have. You can read government guidance for free here.
How do I spot pension transfer scams?
It is important to have an awareness of pension transfer scams. Unfortunately, many fraudsters operate in the pensions market, and their fake pensions companies can cost you hundreds or even thousands.
You should proceed with caution when you chat with someone who says that they can help transfer your pension pot. Cold calls over the telephone or unsolicited emails can be a clear sign that you should not trust the person you’re speaking to.
If you think you have spoken to a scammer, you should report it. Many of these fake firms will try to get you to abuse or cheat the system and break UK law. This can have big tax consequences and cost you large fines that will leave you less to live on in retirement.
Always check that the adviser has been authorised and regulated by the Financial Conduct Authority. You can read a register of their approved advisers online. This trade body is there to help make changes and put protection in place for pension holders like you.
Frequently Asked Questions
What is contingent charging?
Contingent charging is a way of pricing advisory services for pension transfers. The pricing model works by only charging customers after they have acted on the company’s recommendation to transfer a pension.
Should I get pension transfer advice?
Yes. If you might want to transfer a pension fund, it’s likely that you will need to get professional guidance under UK law. This is because there are many risks and implications involved with pension transfers.
Can I transfer my pension to another person?
No. It is normally not possible to transfer pensions to another person. Part of the reason for this is that your pension savings are personal.
Can I transfer my pension to my wife?
You cannot use a pension transfer to give someone else your pension funds. However, you can nominate beneficiaries to inherit the money from your pension pot when you pass away.
