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6 things to consider when transferring your pension

Transferring your pension isn’t always as easy as it seems.

While there may be more attractive pension schemes out there, you might find that leaving your existing scheme may also void some of your hard-earned extras, add-ons and perks.

Here are the things you need to consider before going through with a pension transfer.

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Why transfer your pension? 

Whether you’re looking for more control over your pension investments, looking for better rates of return, cheaper costs or simply need to find a new pension to replace a current one that’s closing, there are lots of reasons you might want to transfer your pension. 

But if there’s one thing pension providers value above all else, it’s long-term savers.

That’s why many pension providers offer monetary and non-monetary benefits to keep your pension on their scheme.

For instance, your pension could come with a financial bonus like a guaranteed annuity rate, or even life assurance cover.    

But if you decide that the time has come to transfer your pension, you need to make sure that it’s the right decision for you.

While there may be schemes with more attractive headline offers, pension rewards rarely carry between different pension providers, and you may even face costs when it comes to making the transfer.

So, it pays to be prepared before you make any decision.  

Exit costs 

Your current pension provider may charge you exit fees if you look to leave or transfer your current pension plan.

Although exit fees were capped at 1% of the existing value of contract-based personal pensions in 2017, the exact amount will vary between providers.

Your current provider may not even charge exit fees at all.  

While young savers are likely to recoup any exit fees over time, if you’re already close to taking your retirement, a loss of hundreds or thousands of pounds can make a major dent in your future plans.  

While there are ways to beat exit fees, make sure you know whether an exit fee will be charged, and if you will be charged, find out what the charge will be. It could make all the difference.  

Lost bonuses 

Some pension schemes reward you with extra monetary and non-monetary bonuses the longer you stay and make regular contributions to your plan.

Some typical bonuses include life assurance, often as part of a workplace pension plan, a waiver of your pension premium or even the option of an earlier retirement age.

Should you transfer your pension, these will likely be lost.  

Should you need to pay to replace your lost life assurance policy, for example, it may actually end up more expensive if your health deteriorates before getting the replacement policy.

Weigh up the value of your current bonuses and rewards and ask yourself how important they are to your future plans — you may not get them back with a pension transfer.  

Guaranteed annuity rates  

While guaranteed annuity rates are harder to come by in modern pension plans, many schemes from the 1980s and 1990s come with guaranteed annuities.

This means that, usually at a certain age, part or all of your pension pot will be transferred into a guaranteed lifetime income.

When offered by your pension provider as part of your pension plan, you will often get a better rate than you would by buying an annuity from an entirely new provider.  

If you’re planning on taking advantage of a beneficial guaranteed annuity rate, you may be better off staying with your current pension scheme, as it’s unlikely you’ll get the same rate when you transfer.  

Learn more: what is a is a guaranteed annuity rate?

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Added risk 

A popular reason for transferring your pension is the added control you will have over what your pension is invested into.

Particularly if you’re switching a workplace pension or final salary scheme into a personal pension plan, control over what your deposits are invested into switches from your employer to you.  

However, this means that the risks of your investments will also transfer to you.

If you’re unfamiliar with making pension investments, or aren’t comfortable with taking on investment risk, transferring to a personal pension may not be for you.

Should you make the wrong decisions, you could accidentally end up losing portions of your savings.

And while there is always the option of taking on expert financial advice to help you arrange your pension, this represents an ongoing cost that you will need to factor into your future plans.  

When is the right time to transfer your pension? 

One of the difficulties of transferring a pension is getting the timing right.

All pensions gain and lose value over time, even ones that are invested in safe asset and investment classes.

And while pensions typically regain lost value over time, you may want to think about holding back on transferring a pension if your fund has recently stagnated or lost a little value.

Moving to a new pension plan from a strong place is the best way to go about getting the right pension for you. 

You should also remember that transferring pensions can take time.

Your current pension provider must transfer your pension across within six months.

However, during this time you may be exposed to fluctuations in the value of your pension.

While being transferred, your pension isn’t invested.

So, if there is a drastic rise or fall in the funds you would have been invested in had your pension not been transferred, your pension won’t be affected.  

Take on board the right financial advice 

By transferring your pension, you could take advantage of better plans than the one you’re currently on.

But this doesn’t mean that the grass will always be greener.

Take the time to weigh up the pros and cons of transferring to a new plan and staying on your current one — particularly if you’re already approaching retirement.  

Taking on sound financial advice can help you plan for your retirement.

Find out if transferring your pension is right for you by speaking to an independent financial adviser. Find your next adviser with Unbiased.  

If you found this article useful, you might also find our articles on pension recycling and transferring a SIPP informative, too.

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About the author
Kate has written for leading publications and blue chip companies over the last 20 years.