Pension Planning

How does a pension transfer work?

Pension transfers help ensure you make the most of your retirement contributions. You need to be careful about possible fees and penalties, however. Getting to the bottom of your current scheme’s inner workings should be the first step to a better retirement.

 - 8 Min Read
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How does a pension transfer work?
  • An average UK adult has 11 jobs in their lifetime, which can mean several pension schemes.
  • Transferring pensions from one scheme to another is possible to maximise benefits.
  • Pension transfers can take time, and you might lose certain benefits.
  • Knowing the process and your pension scheme rules help you navigate the process smoothly.

Pension transfers: FAQs

  • Is it good to transfer your pension?

    A pension transfer can be a great way to boost your retirement income. If you feel your pension scheme is not working, you might find better deals. However, you should look into your existing scheme to understand whether you can transfer all your pension benefits and go through with the transfer without costly fees.

  • Can I transfer my pension online?

    You must apply to the pension scheme you want to transfer to and receive the transfer value estimates from your current provider. Many providers have an online process you can follow. Some providers may require you to complete a form and send it through by other means. Take time when choosing your pension to find the best deal.

  • What is the difference between a pension transfer and a pension conversion?

    A pension transfer means moving your pension from one pension scheme to another. The transfer may or may not include the transfer of safeguarded benefits. A pension conversion is a transaction where you either withdraw a lump sum or convert benefits into other flexible benefits under your pension scheme. Pension jargon can be complicated, so look up the terms!

  • How long does a pension transfer take?

    Your pension transfer can take anything from a few weeks to a month or two. You should look into the requirements, including necessary paperwork, before starting the process to ensure it goes smoothly. You can also talk to a financial advisor to help with the process.

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Pension plans guarantee your retirement is financially secured. But are you making the most of your current pension? Can you transfer your pension to a different scheme?

If you think your current scheme isn’t benefitting you, placing your pension into another pot might be more lucrative. However, transferring your personal pension requires delicate consideration, and you should weigh your options. Let’s look at how pension transfers work and how to change your pension schemes.

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Why you might want to transfer your pension?

There are different situations when a pension transfer is worth considering. The common situations for moving some or all of your pension fund include:

  • A change of jobs and getting a new workplace pension
  • Closing of your current pension scheme
  • Having multiple pensions from different employers that you want to bring together
  • Moving overseas and wishing to take the pension to a scheme in that country
  • Finding a better pension scheme

The UK Government has introduced new regulations to tweak the pension transfer system. Transferring your pension is generally not too difficult, but shopping around is vital for a good result. You want to ensure your plan works well, providing you with the most benefits.

What to know before you transfer a pension?

Before you consider switching pension providers, you must ensure a few things. You should check with your existing pension scheme if it allows the transfer. You want to investigate whether you can transfer the full value of your pension or some of it. You must also research the pension pot you wish to transfer to and ensure they accept the transfer.

You should know that when you transfer your pension, you may:

  • Need to pay towards the new scheme
  • Pay a fee to finish the transfer
  • Lose the rights you had previously to take out your pension at a certain age
  • Lose fixed or enhanced protection you had on the previous pot
  • Lose the right to take a tax-free lump sum of over 25% of your pension pot

Consulting your pension providers ensures you don’t face unexpected conditions or payments.

Transferring to a UK pension scheme

You can transfer your UK pension pot to another registered UK pension scheme in a few different ways. The benefits of the transfer and the process depend on your pension type. Let’s look at the examples.

Transferring a defined benefit pension

If you have a defined benefit pension (final salary or career advantage), transferring it typically means giving up your guaranteed income for life in return for a cash value. You can then invest the value in another pension scheme.

In most cases, transferring from a defined benefit scheme to a defined contribution scheme is not recommended. The Financial Conduct Authority (FCA) and the Pensions Regulator (TPR) believe that keeping the defined benefit pension is better. However, it can be possible to take those pension savings elsewhere.

In most cases, you must submit a written application notifying the pension administrator that you wish to transfer. You might have to pay a fee and lose certain privileges.

If you qualify for the cash equivalent transfer value (CETV), you’ll receive a Statement of Entitlement from the scheme provider. The document will show you the following:

  • The transfer value
  • Details of the benefits you’ve built up with your existing provider.

You’ll also receive information to provide to your new pension scheme provider. Your transfer value is guaranteed for three months. If you don’t transfer within three months, you might have to apply for another CETV.

If you decide to proceed with the transfer and the value of your defined benefits is over £30,000, you must provide evidence to your scheme administrator that you’ve taken regulated financial advice. Talking with an advisor is always a good idea. You’ll be more aware of your investment options and can maximise your pension transfer.

Remember that you can’t typically move your defined benefit pension elsewhere once you start withdrawing it.

Transferring your defined contribution pension

Transferring your pension pot as a defined contribution pension is typically easier. Unlike defined benefit pensions, you can often transfer defined contribution pensions even after you start withdrawing money from them. However, this can have downsides, so talk to an advisor beforehand.

To transfer your defined contribution pension, you should receive the transfer value from your pension provider. They will provide you with a document setting up the value and information on the benefits you might have built.

You also need to apply to the new pension scheme. Providers tend to have online transfer options, while others might request you to fill out a form.

Once you’ve applied, the new provider typically contacts the old pension scheme provider to arrange the transfer.

You need to complete the pension transfer within six months from the start of the transfer process.

Transferring your self-invested personal pension (SIPP)

If you’re self-employed, then you might have invested in a SIPP. Transferring your SIPP to another pension provider is possible. You can transfer to any UK-registered scheme or even a qualifying overseas plan.

Authorising the transfer doesn’t require a financial advisor consultation. You can request a formal pension transfer value from your existing provider.

Transferring to an overseas pension scheme

If you have a UK pension and you’re looking to move abroad, you may be able to transfer the savings to an overseas scheme. To qualify, the overseas pension scheme has to be a qualifying recognised overseas pension scheme (QROPS). If not, your UK pension scheme could refuse to transfer, or you may have to pay at least 40% tax on the transfer.

Tax payments on QROPS schemes depend on where the pension scheme is based. If you’re transferring to an employer-provided QROPS, you typically don’t pay tax. For QROPS based in the European Economic Area or Gibraltar, you pay 25% if you live outside the UK, Gibraltar or the EEA or move to live outside those areas within five years.

You can find the form APSS 263 on the HMRC website. The form provides details on the information you need to deliver. Your current and new pension scheme provider can also provide guidance on the process and any possible fees and requirements.

Be aware that if you want to receive payments from an overseas pension, you may have to pay UK tax on some of those. The tax depends on when you were a UK resident.

Should you transfer your pensions?

Pension transfers require a bit of paperwork. The extra effort can be worth it, as you may find better pension schemes out there and maximising your pension is essential to retirement planning.

However, there are certain instances where transferring might not be a good idea. You should think twice about transferring if:

  • Your current pension has guaranteed benefits that might not follow over to your new pension scheme. This is why defined benefit pensions are rarely suitable for pension transfers.
  • You need to pay a hefty exit charge. The charges can vary, and one report suggested that 670,000 pension savers had faced 10% exit fees in the past. The FCA has now imposed a cap of 1% for savers over 55, and there is an exit fee ban on new plans. Always check the fees of your pension scheme.

You should first talk with your pension provider and understand whether the transfer is possible. Plan managers can explain the various requirements to guarantee you make the correct investment choices.

Get help with your pension scheme

Remember that you always want to transfer your pension to a registered scheme. Transferring your pension pot elsewhere or taking it out as an unauthorised lump sum will count as an unauthorised payment. You must pay tax on the transfer, which could cost you a lot of money.

If you’re unsure about your current pension plan or considering a transfer, it’s always good to check with your pension provider and those you’re considering. You can also get free and impartial information from MoneyHelper.

Talking to an independent financial adviser is another option. Remember to research your advisor and use registered advisors. Most independent advisors will charge a fee, so always check the cost beforehand.

Finally, don’t forget to contact Action Fraud if you are concerned about pension scams.

Understanding how pension transfers work

The first step to making the most of your pension is knowledge. You should understand how to save for a pension and how the different pension schemes work - not to forget your state pension benefits.

Considering different retirement options and staying on top of your retirement savings is important. Make sure you know your pension plans, and use a pension tracing service if you’re unsure where your pensions are held.

If you feel like your pension scheme is not working for you or your provider is shutting down, pension transfers can be useful. The benefits and transfer detail depend on your specific circumstances. Talk to your pension scheme provider and seek professional advice to guarantee your pension transfer ends with success.

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