Three things to think about when transferring your pension


Published  08 July 2022
   10 min read

Are you thinking about making a pension transfer from one pension company to another? Read on to learn about the key things to consider when making a decision.

1. Can I transfer my pension?

There might be restrictions on your transfer options so it’s worth finding out from your current provider what type of pension you have. The main types are defined contribution (DC) or defined benefit (DB) pensions.

Defined Contribution pensions - you build up a pot of money over your working life by making contributions into your pension plan. This may also include an employer contribution. When you reach age 55 (changing to age 57 from 6 April 2028), you can start taking your pension savings.

You can transfer most types of DC pensions but if you have any benefits or features attached to your plan you may lose these if you decide to transfer.

If your DC pension is worth more than £30,000 and has a guarantee about how much you'll be paid when you retire, you must get financial advice before you make a pension transfer.

Defined Benefit (final salary) pensions - with this type of pension your benefits are calculated using length of employment and salary. DB pensions provide a valuable guaranteed retirement income and often have other special benefits.

If you want to transfer a DB pension, it needs to be transferred into a DC pension. If you do this, you will lose access to any scheme benefits from your DB pension.

If you're thinking of transferring a DB pension to a DC pension and the value of your pension benefits is more than £30,000, you must get advice from a financial adviser.


2. Should I transfer my pension?

There are pros and cons to a pension transfer. It’s important to make sure you have all the information you need, and take some time to make a decision that’s right for you.

There’s no guarantee that transferring or combining your pensions will give a higher income or bigger pension pot when you retire. Your pension is invested so its value can go down as well as up and you could get back less than you put in to your plan.

  • Ease and convenience

    It can be hard to keep track of lots of different pensions. Having your pension savings in one place makes it easier to keep track, and can help you feel in control of planning your retirement.

  • Charges

    You might want to transfer if your new pension provider charges lower fees.

  • Investment choice

    You might have access to a wider range of investment options by transferring to a different provider. You may also want to check your previous and current provider's approach to responsible investment.

  • Flexibility at retirement

    Your current provider might not offer the full range of retirement options. Most providers are likely to offer you flexibility at retirement. But it's worth checking so that when you come to retire, you can take your pension savings in a way that suits you.

  • Costs

    You should check to see what costs are involved in transferring, like transfer fees or charges for independent financial advice.

  • You might lose valuable benefits

    Depending on how long your plan has been active, you might have special benefits which may be lost if you transfer.

  • Investment performance

    There’s no guarantee that any new investment choice will perform better than your previous providers.

  • Small pots

    Small pension pots come with advantages that can be useful. For example, you can cash in small pots of less than £10,000 and continue to pay into another pension up to the annual allowance of £40,000.

3. Should I speak to a financial adviser?

An adviser can look at your overall finances to help:

  • Understand your needs
  • Discuss potential solutions
  • Draw up a short list of options and providers
  • Highlight the pros and cons
  • Make a recommendation

Advisers may charge for their services – though they should agree any fees with you upfront.

Find a financial adviser

There are some situations where you must get financial advice before making a pension transfer. If your pension is worth £30,000 or less and you’re not sure if transferring is right for you, we recommend you speak to a financial adviser before making a decision. In fact, we’ll always ask you to get advice if you’re thinking about transferring from a DB scheme.

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