Is transferring my pension a good idea?

Pension transfers explained

Can I transfer my UK pension to another pension? What are the rules?

The short answer is yes, it’s possible to transfer your pension to another provider. In fact, there are many reasons why someone may want to move an existing pension pot, including:

• Starting a new job
• Closure or wind-up of a pension scheme
• Transferring to a scheme that is easier to manage, or has fewer charges
• Consolidating multiple pensions from different employers
• Moving to a personal pension, such as a self-invested personal pension (SIPP).

Depending on the type of pension you’re looking to transfer and the provider, though, there may be restrictions in place.

Transferring a defined contribution pension

Most defined contribution pensions (also known as ‘money purchase’ pensions) can easily be transferred, including workplace pensions and SIPPs.

Before initiating a transfer, some providers may ask that you get regulated financial advice – especially if your current pension offers a guaranteed annuity rate or other benefit worth more than £30,000.

After transferring from a defined contribution scheme, you’ll usually have a 30-day cooling off period in which you can change your mind. However, your former provider is under no obligation to accept your pension back.

Transferring a defined benefits pension

Meanwhile, there are more stringent rules in place when it comes to transferring a defined benefit pension (or ‘final salary’ pension). For example, it’s mandatory you take regulated financial advice when transferring a defined benefit pension worth more than £30,000; even if the value of your pension falls below this threshold, some providers may require proof you received financial advice before accepting a transfer.

You also must take advice if you’re considering moving from a defined benefit pension to a defined contribution plan. This is because the Financial Conduct Authority’s (FCA) default position is transferring from a defined benefit to a defined contribution pension won’t be in most people’s best interest.

It should be noted you can’t transfer a defined benefit pension from an unfunded public sector to a defined contribution scheme (this includes the NHS, armed forces and teachers’ pension schemes) and, importantly, transferring out of a defined benefits pension cannot be reversed.

Should I transfer my pension? Is it a good idea?

Whether it’s a good idea to transfer your pension will depend on your individual circumstances and savings goals. For instance, it could be a good idea to move your pension if:

• You want access to a wider range of investment opportunities; having more choice could offer the potential for greater returns on your investment. Keep in mind, all investments carry some level of risk and returns aren’t guaranteed.

• You want more flexibility when it comes to withdrawing your pension. Modern schemes can include features such as pension drawdown (otherwise known as ‘flexi-access drawdown’), allowing access to your retirement savings as and when you need after turning 55 (or 57 as of 2028).

• You want to reduce fees. While all pension schemes carry fees, the cost can vary. It may be worth shopping around and transferring your pension if cheaper options are available.

• You want your child to inherit your pension. When you pass away, most defined benefit schemes will continue to pay a portion of your pension to a spouse or civil partner, but typically won’t offer any income to children unless they’re under 23, still in education or have a disability. In this instance, a defined contribution pension could offer greater flexibility, as you can usually nominate any beneficiary to receive your unused pot upon your death.

Is it better to keep pensions in one place?

Consolidating multiple pension pots under one provider could make it easier to keep track of your savings for retirement. In some cases, it could also prove cost-effective, as you’d only need to meet the fees of one provider.

However, if you have multiple defined contribution pensions containing £10,000 or less, it could be beneficial to keep them separate and take advantage of ‘small pot’ pension rules. Under these rules, you can cash-in an unlimited number of occupational pots worth up to £10,000 (or three personal pensions) without affecting your Lump Sum Allowance (LSA) or your ability to continue paying into a pension and receive tax relief on your contributions.

How to transfer a pension

Unlike the decision to move your pension, the transfer process itself is relatively straightforward.

To get started, you’ll need key information to hand, including the type of pension you’re looking to transfer, its transfer value or cash-equivalent transfer value (CETV), and your policy number. You can find out the transfer value or CETV by contacting your current provider or by reviewing your most recent pension statement.

Next, you’ll need to apply to your desired pension scheme and ask your new provider to organise a transfer. While this process can be facilitated entirely by the provider, sometimes you’ll be required to authorise the transfer with your existing provider and/or complete a pension transfer form.

Most pensions can be transferred at any time up until one year before you expect to receive retirement benefits - be sure to check whether this is the case with your provider.

How long does it take to transfer a pension?

The transfer process can take anywhere from a couple of weeks to months to complete; providers are obligated to complete the move within six months of a transfer successfully being initiated.

Pension transfer fees

Although uncommon, some providers may charge exit fees when transferring to a new scheme. These typically apply to pensions established before 31 March 2017, when the FCA introduced a 1% cap on early exit charges for existing schemes and prohibited similar fees on new contracts.

If your current scheme imposes exit fees, you should consider whether this cost outweighs the reasons for transferring your pension.

Is pension value lost when transferring?

Like all investments, the value of your pension can go down as well as up over time; if you’re moving pension funds to another provider, your pot will continue to rise and/or fall throughout the transfer process.

In contrast, when transferring the cash value of your pension, your pot won’t remain invested. While this means it won’t be affected by any market losses, it also won’t benefit from any gains.

Bear in mind, it’s not just potential returns you could miss out on by transferring your pension. If your scheme includes valuable features, such as a guaranteed annuity rate, the option of an earlier retirement, or life insurance, these could all be lost when transferring to another provider. Therefore, it’s crucial to seek regulated financial advice if you’re uncertain.

Can a pension company refuse a transfer?

Introduced in 2021, the Pensions Scheme Act gives providers the power to refuse transfers they think could be a scam. Any suspicious activity is allocated either a red or amber flag depending on the severity.

Amber flags can include providing incomplete or false information, lacking proof of employment, a new scheme containing high-risk investments or expensive charges, or even a provider experiencing an unusually high volume of transfer requests. In response to any amber flags, you’ll need to attend a free Pension Safeguarding Guidance appointment with the Government-backed organisation, MoneyHelper.

Meanwhile, a provider must refuse a pension transfer if there are any red flags, such as failing to provide information in a timely manner, taking advice from an unregulated source or if there are signs you were pressured or incentivised into moving your pot.