What do we mean by Pension Transfer?
Put simply, a Pension Transfer happens when you transfer out of the defined benefit (salary related) pension scheme that you have with your current, or old, employer. In doing so, you give up the guaranteed benefits associated with your current scheme, in return for a cash sum, the Cash Equivalent Transfer Value (CETV), that will be invested into another pension scheme. The new scheme could be another Defined Benefits scheme, your current workplace pension or a private pension such as a personal or stakeholder pension. It is also possible to transfer to bespoke pensions such as Self Invested Personal Pensions (SIPPs) and overseas pensions.
In general this is a highly complex transaction and there is much at stake because you will be giving up valuable guaranteed benefits and once done, there generally no going back. So it’s very important to ensure that you get the decision right. A good rule for this is, “if in doubt, don’t do it’.
Does your existing scheme allow for a Pension Transfer?
If you are in an unfunded public sector pension scheme e.g. the Teachers Scheme, Police, Armed Forces or NHS Superannuation Scheme, you will not be allowed to transfer your pension. Other public sector schemes such as the Local Government Pension Scheme and the Universities Superannuation Schemes do allow transfers. Most private sector schemes allow transfers.
Self Invested Personal Pensions (SIPPs)
A Self Invested Personal Pension (SIPP) is a tax-efficient wrapper within which a wide range of investments can be held. A new SIPP must appoint a scheme administrator, usually the recognised product provider. SIPPs have the same tax benefits and regulations as conventional personal pension plans but you and / or your advisers have control over the investment choice – each SIPP is unique to the individual. Otherwise, it operates in the same way as a conventional personal pension in respect of contributions and eligibility, for Her Majesty’s Revenue & Customs (HMRC) purposes.
The complex nature of a SIPP means that it is not suitable for all investors. Often, the benefits of ‘self investment’ are only advantageous to people with very large funds and / or investors with some level of sophistication when it comes to investment decisions. Often, there are additional charges for arranging and dealing within a SIPP and these charges would erode smaller funds quickly.
The benefits of using a SIPP include being able to invest in:
- Stocks and shares listed or dealt on an HMRC recognised stock exchange, including AIM (Alternative Investment Market.)
- Stock exchanges that are not recognised by HMRC, e.g. OFEX.
- Unit trusts, open ended investment companies (OEICs)
- Warrants, covered warrants
- Government stock and fixed interest stock
- Unquoted shares
- Commercial property & land
- Property funds
We will be able to provide more details and make a recommendation based on your own circumstances.
Pensions are a long term investment. You may get back less than you put in. Pensions can be and are subject to tax and regulatory change; therefore the tax treatment of pension benefits can and may change in the future.