Pension transfers - what you need to think about

A pension transfer is an important financial decision. Transfers can impact your plans for saving for your retirement. And they can be quite involved, especially if you've got a pension plan with special benefits or a high value pot.

There's no guarantee that transferring or combining your pensions will give you a higher income or bigger pension pot. Your pension is invested, its value can go down as well as up and you could get back less than invested.

Things to think about 

You'll need to fully consider your options and whether you're doing the right thing before you go any further with a transfer.

There's three main things that you need to think about:

Can I transfer my pension?

If you're thinking about a pension transfer, you'll need to know whether your pension can be transferred. There might be restrictions on your transfer options depending on what type of pension plan you have.

There are two main types of pensions – defined contribution (DC) and defined benefit (DB) pensions.

Defined contribution (DC) pensions

Defined Contribution pensions are where you build up a pot of money over your working life. Contributions come from you and possibly your employer. When you retire, you can access this pot in different ways, including as a regular income.

There are a few important things you need to keep in mind if you're thinking about transferring a DC pension:

• You can transfer most types of DC pension to another pension provider but you may not be able to transfer any special benefits.
• You must get advice from a financial adviser if your DC pension is worth more than £30,000 and has a guarantee about how much you'll be paid when you retire.

Defined benefit (DB) pensions

Defined Benefit pensions are company pensions that pay a set income based on how long you work for the firm and how much you earn. You may also know them as 'final salary' pensions. They provide a valuable guaranteed retirement income and often have other special benefits.

• If you want to transfer a DB pension, it'll need to be transferred into a DC pension. If you do this, you will lose access to any scheme benefits from your DB pension.
• The Financial Conduct Authority (external link) says you should start with the assumption that staying in the DB scheme is the best option for you. But in some situations there may be advantages to transferring into a DC pension.
• If you're thinking of transferring a DB pension to a DC pension, you must get advice from a regulated financial adviser if the value of your pension benefits is more than £30,000.

The Government's impartial Pension Wise from MoneyHelper service (external link) recommends contacting your current pension provider to find out if there are any restrictions on which pensions you can transfer. 

Is a transfer right for me?

There are pros and cons to transferring your pension and it’s important you have all the information you need to make the right decision. That's why it’s a good idea to get financial advice before making any decision.

The following information is about combining any Defined Contribution pensions you may have.

There's no guarantee that transferring or combining your pensions will give you a higher income or bigger pension pot. Your pension is invested, its value can go down as well as up and you could get back less than invested.

Should I speak to a financial adviser?

When making any major decision about your retirement savings, including transferring a pension, we recommend that you speak to an independent financial adviser. An adviser can 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.

Do I have to speak to an adviser?

If you're thinking about a pension transfer, there are certain circumstances where by law you must speak to a financial adviser before you transfer. These are if you have:

• a DB pension worth more than £30,000 and want to transfer to a DC pension
• a DC pension worth more than £30,000 with a guarantee about what you'll be paid when you retire (also known as a Guaranteed Annuity Rate, or GAR) and will lose this benefit by transferring.

This legal requirement is to protect you and make sure that you fully understand the advantages, disadvantages and risks of transferring.

Even if your pension is worth £30,000 or less, it is still a good idea to talk to a financial adviser if you're thinking about a transfer.