Pensions are the cornerstone of retirement planning, providing financial security in our golden years.
But as life changes, so do our financial needs and requirements. Pension transfers could help ensure those needs and requirements are met.
In this guide, we break down everything you need to know about pension transfers. We will explore the benefits, transfer process, types of pensions eligible for transfer and more.
Should I transfer my pension?
It’s quite common for people to have multiple pensions. As you move jobs throughout your career, you will likely pick up several workplace pensions. On top of that, there are personal pension plans that you open yourself.
For some, consolidating their pensions and having all of their retirement savings in one place is the preferred option.
A pension transfer is the process of moving your pension savings from your current scheme to a new scheme or provider.
There are several reasons you may wish to transfer a pension pot, including:
- To reduce charges: Having pensions with multiple providers may result in higher costs and fees. Transferring them into one pot may reduce charges and help you get a better deal.
- Retiring abroad: A pension transfer could help those who retire abroad to maximise their retirement savings by reducing currency exchange rate risk.
- To increase investment options: Different schemes and providers offer different investment options. By transferring your pension, you could increase the number of investment choices available to you.
- For easier management: Having all of your pensions under one roof can make them easier to track and manage. It will also mean less admin and paperwork.
Transferring your UK pension overseas
For those looking to retire abroad, transferring to a pension scheme or provider outside the UK may provide several benefits.
For example, having your pension paid in the currency of the country you are living in can protect your retirement income from currency rate fluctuations.
When transferring a pension overseas, there are several options. Some of these include:
A qualifying recognised overseas pension scheme (QROPS) is a pension wrapper that follows the rules set out by HMRC. This allows them to receive transfers from UK-registered pension schemes.
A QROPS also allows you to take up to 30% of your total pension pot free from UK income tax under the current legislation. However, there are circumstances where you may have to pay a 25% transfer tax.
A self-invested personal pension (SIPP) is a type of defined contribution pension.
With a SIPP, the holder is responsible for the investment decisions. It also typically offers a much wider range of investment options, meaning it can provide more control and flexibility over your pension savings.
A qualifying non-UK pension scheme, or QNUPS, is an overseas pension scheme with no residency restrictions.
While they cannot receive UK tax-relieved pension scheme transfers, most assets can be transferred into a QNUPS. This includes stocks and shares, life insurance policies, cash deposits, property and even alternative investments such as art and wine.
It’s important to understand the difference between SIPPs, QROPS and QNUPS. Each has different use cases and benefits. Finding the right product for you depends on several factors, such as your individual circumstances and needs.
Seeking professional financial advice can help you better understand your options and which is right for you.
Transferring pensions – what to consider
Your pension is a valuable asset. The decision to transfer it should not be taken lightly, as it could result in the loss of certain scheme benefits or tax charges.
Some of the things to consider before transferring include:
- Pension benefits: Your current provider may offer retirement benefits or certain guarantees, such as an annuity rate or a guaranteed income for life with a DB pension. These could be lost if you transfer.
- Retirement income: It’s essential to make sure a transfer is the right financial decision for you. Things such as tax treatment could impact your overall retirement income.
- Fees and exit charges: Check for any charges or fees you may be liable for if you transfer. This includes transfer and exit fees.
- Scheme rules: The age at which you can access your pension is usually determined by the protected pension age (PPA). This is typically 55. However, some schemes have a PPA of less than 55. PPA rules apply on a scheme-by-scheme basis, so it’s important to check.
What types of pensions can be transferred?
Except for the UK State Pension, most pension products can be transferred.
There are two main types of pensions in the UK.
Defined Contribution pension
Most workplace pension schemes today are Defined Contribution (DC) schemes.
A Self-Invested Personal Pension (SIPP) is a pension plan that lets you choose how your savings are invested. A SIPP is a type of defined contribution personal pension, which means the value of your pension pot at retirement depends on the amount you pay in and the performance of your investments.
With defined contribution schemes, the amount you have in your pension pot when you retire is primarily determined by two factors:
- The money paid into your pension pot by you and your employer
- The potential investment growth over time
Defined Benefit pension
Defined benefit (DB) schemes are sometimes known as a career average or final salary pension. DB pensions are typically more common for public sector employees.
This type of pension pays a guaranteed income for life. The amount you get usually depends on either:
- How long you have worked for the employer
- Your final salary when you left the employer or retired
How to transfer a pension
While most people are eligible to transfer their pension, you should check with your current pension provider to ensure you can transfer your pension fund to another company.
To start the pension transfer process, you must find out the transfer value if you wish to transfer a defined benefit pension. You will need to know the Cash Equivalent Transfer Value (CETV) for defined benefit pensions or the Transfer Value (TV) for defined contribution pensions.
In both cases, you can get this information from the scheme administrator or pension provider. If you are unsure of the provider’s details, you can use the government’s Pension Tracing Service.
Pension savers should carefully consider the advantages, costs, and risks of moving their pension – either with the help of a financial adviser or by getting in touch with their pension providers.
If you have a guaranteed pension worth more than £30,000, you must seek advice from an FCA-regulated financial adviser by law. The adviser must have permission to advise on pension transfers and pension opt-outs. This is also referred to as a pension transfer specialist.
How can a pension transfer specialist help?
When transferring a pension, there is a lot to consider. In some cases, advice is required by law before a DB transfer can be completed.
A pension transfer specialist is someone who is qualified and has experience in helping clients move their pensions to different providers. They can advise you on the best options and products based on your personal circumstances to help you maximise your income at retirement.
At Holborn Assets, we provide expert financial advice and wealth management solutions to a global client base.
Our advisers offer impartial advice tailored to your personal circumstances, needs and goals. This is essential to help you make a more informed decision.
Make sure your retirement goals are on track. Book a free, no-obligation meeting today and learn how we can help you maximise your pension savings.