What are the key things to think about if you want to transfer your pensions from one pension company to another?
Difference between combining, switching and transferring pensions
Many different terms are used when talking about moving your pensions together. You might have heard words like consolidating, combining, switching as well as transferring.
The term transfer can often be used more to describe moving a defined benefit (DB) pension, where you have a guaranteed income for the rest of your life, to a defined contribution (DC) pension, where you have a pot of money and it’s up to you to decide on how to make that last. It is possible to transfer some DB pensions to a DC pension; however, you will lose access to your guaranteed benefits from your DB scheme. There is information about DB to DC transfers in our guide Defined Benefit pensions – the pros and cons of transferring. It’s important to understand that moving from DB to DC is likely to be a more complicated financial decision and will usually require financial advice to be taken.
In this guide, we will focus on moving DC pensions together and it doesn’t really matter what term you use.
Why people transfer their pensions?
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. You should read our Pension Transfer Guide before making any decision. Below are just some of the things you should think about before transferring.
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.
There are pros and cons to a pension transfer. 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 into your plan. However, the main reasons that people want to move their pensions together are;
- For ease and convenience – it can feel difficult managing different pensions
- Reduction in costs – bringing pensions together can reduce the costs
- Flexibility – some older pensions don’t offer the same flexibility as newer pensions.
Should I transfer my pension?
Is it a good idea for everyone?
Transferring your pension isn’t a good idea for everyone. You can transfer most types of DC pensions but if you have any benefits or features attached to your pension you may lose these if you decide to transfer.
Before you make a decision about moving your pensions together, 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. You should read our Pension Transfer Guide before making any decision.
Reasons people transfer their pensions
Life admin
Having your pension savings in one place makes it easier to keep track and can help you feel in control of planning your retirement. It is important to make sure that you don’t lose out from transferring though.
Lower Charges
Lower charges can have a big impact on the value of your pension plan over time. It’s worth considering the charges you’re currently paying and those you may pay if you transfer to another plan. You can normally check your pension charges in your pension provider’s app or your annual pension statement.
But watch out as sometimes it there are lower charges, it means that you might not have as much investment choices or as many options for taking money out of your pension. For many people, they might not need as much investment choice but if this is something important to you then it’s worth investigating.
Investment options
If you want access to a wider range of investment options, you should consider this as part of your transfer decision. You might also want access to certain options like the ability to investing responsibly or in funds that align with your beliefs.
But a wider range of investment options doesn’t guarantee greater returns, and a pension with more investment options may cost more.
Taking money out of your pension
Most modern DC pensions are likely to offer you flexibility at retirement which just means various options when taking your pension money out. But it's worth checking so that when you come to retire, you can take your pension savings in a way that suits you.
Reasons you might not transfer your pension
Smaller pension pots
If you have 'small pots' of less than £10,000 it can sometimes be beneficial to keep them separate. For example, it can give some flexibility to take money from them in the future without triggering other tax restrictions. For more information on this please see out guide on How your pension is taxed.
Potential loss of valuable benefits
This is especially true for pensions from the 1980s and 1990s as these often have valuable guarantees about how much how much you'll be paid when you retire or you might have the right to more than 25% tax free cash or you can access your pension sooner. If you have one of these pensions and it’s worth more than £30,000 then you must get financial advice before you can transfer it.
You might still want to transfer as it may be an older plan with limited investment options which have performed poorly, and you may derive a greater benefit from being in another plan but it’s important to consider these before making a decision.
How to decide if a pension transfer is right for you?
- Do your research. Understand the pensions that you have and think about the benefits of moving them together but any potential disadvantages.
- Review your financial and retirement goals, including the level of risk you are willing to take. What do you want to achieve and by when. Do you feel you’re on track to achieve these goals?
- Consider taking financial advice. This might not be appropriate for everyone but especially as you get closer to retirement, this can be invaluable.
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
- Explain the process in moving your pensions together
- Make a recommendation.
More information can be found in our guide Getting Financial Advice. Advisers may charge for their services – though they should agree any fees with you upfront.
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