How to transfer a drawdown pension
Learn how to transfer a drawdown pension seamlessly with our guide, which includes useful steps for a smooth pension transfer.
Learn how to transfer a drawdown pension plan to another provider and how this could affect your retirement.
Even in retirement, you still have the option to transfer a pension to another provider.
Transferring your drawdown pension plan could help you save on fees or access more investment choices, but you need to be careful not to lose any valuable benefits.
Transferring to a new provider is a big decision, and it’s important to get financial advice.
What is a drawdown pension and how does it work?
A drawdown pension is a flexible retirement option that allows you to withdraw money from your defined contribution pension pot while keeping the remainder invested.
Once you reach age 55, rising to 57 in 2028, you have the option to start taking income from your pension.
The first 25% can be taken tax-free - read our guide here for more on your options for taking a tax-free lump sum.
You can use the remaining 75% to buy an annuity or to transfer to a drawdown pension plan. This drawdown pension will remain invested, ready to use in the future.
You can also transfer your pension into drawdown gradually, taking 25% tax-free each time you move funds.
This table summarises how drawdown compares to buying an annuity:
| Pension drawdown | Annuity | |
|---|---|---|
| How it works | Your pension pot stays invested in retirement while you draw an income. | You buy a guaranteed income in exchange for all or part of your pension pot. |
| Flexibility | You can withdraw a flexible income, depending on your needs. | Your income will be agreed when you buy an annuity. |
| Investment risk | The size of your pension pot can fluctuate depending on the stock market. | No investment risk, as you will continue to receive your agreed income. |
| Inheritance | You can pass on any unused pension to your survivors, although there may be inheritance tax to pay from April 2027. | Unless you have an annuity with a survivor benefit, your annuity income will die with you. |
Once your pension is in drawdown, you can choose whether to take a one-off taxable lump sum, buy an annuity, or keep your funds invested to allow them to benefit from investment growth.
You will be charged income tax on any pension withdrawals from your drawdown plan, just like other types of income.
It’s worth talking to a financial adviser before deciding how to access your pension so you don’t end up with a hefty and avoidable tax bill.
You have several options, and the most suitable will depend on your circumstances. The primary benefit of a drawdown pension over other pension income strategies is its flexibility. You can withdraw funds from your drawdown pension as and when you need them. Read more about drawdown pensions in our guide here.
When you start taking money out of a drawdown pension, you trigger what’s called the money purchase annual allowance (MPAA). This means you will only be able to pay in up to £10,000 a year and claim tax relief on your pension contributions.
If you already have a drawdown pension and are considering moving it, the next section explains when a transfer might make sense.
Should I transfer my drawdown pension to another provider?
Transferring your drawdown pension can make sense if you are paying high fees, have limited investment options, or want better support managing your retirement income.
A drawdown pension can be transferred to a new provider at any time, even after you have started taking income.
Here are some common reasons you might consider transferring your pension:
The new provider offers more investment choices.
You can get cheaper fees by transferring to a new provider.
The new provider offers more help managing your pension.
Transferring your pension is always a big decision. You should make sure to read the small print and take advice so you don’t lose out on any valuable benefits.
What do I need to consider when transferring my drawdown pension?
Before you transfer the remaining savings in your pension to another provider you should weigh all of your options.
In particular, you should consider the fees, tax implications, and potential loss of benefits.
The table below summarises why you might transfer your pension, along with what to consider.
| You want to switch due to | What to look for | What to watch out for |
|---|---|---|
| Consolidating multiple pots | Take your time and look at a range of providers - consider their fees, platform usability and investment choice. | Check you’re not accidentally losing out on any perks - eg. a guaranteed annuity rate on an older pot. |
| High fees | Look at platform fees - flat fees may suit bigger portfolios, while percentage fees suit small pots. | Check if your current provider charges exit fees (note these are banned for newer pensions). |
| Investment choices | Consider a provider that offers a broader range of investment choices. | More choice isn’t always better, and you may prefer a simpler option. |
| More help managing your pension | Some providers offer a simple managed pension option where the provider manages your investments. | Watch out for higher fees. |
Learn more: What are the best annuity rates?
You should also remember that not all drawdown pension plans charge the same fees, so comparing fees is vital.
It is essential to consider the investment risk when transferring your drawdown pension, as this may impact how much you have in your pot.
Many providers allow an in-specie transfer, where you transfer across investments, rather than selling and rebuying. This reduces the risk of losing out if there is a stock market surge while you are uninvested for a few weeks.
With so much to consider when transferring your pension, it’s wise to talk to a financial adviser.
If you want to transfer a defined benefit pension or a pension with safeguarded benefits that is worth more than £30,000, you will need to take financial advice and provide evidence of that advice, for example, a self-invested personal pension (SIPP) financial advice declaration form.
How do I transfer my drawdown pension to another provider?
If you’re ready to transfer your pension into another provider, you need to take the following four steps:
| Step | Action | What to know |
|---|---|---|
| Gather info and choose a provider | Select a provider and gather together pension details | You’ll need your old policy number |
| Consult Pension Wise | Over-50s can have a free appointment with Pension Wise | You can book a free session or sign to say you’ve opted out of advice |
| Speak to a financial adviser | They can help guide you on the most suitable provider | This is optional but it makes sense if you have a large pension pot |
| Choose your strategy | An investment strategy form will ask how you want to invest | If you select an in-specie transfer, this will take longer than a cash transfer |
Want to learn more about pensions?
Knowing how to transfer a drawdown pension and its pros and cons is an excellent starting point for exploring your pension investment options.
Your pension needs to support you throughout retirement, and calculating your costs and needs is essential for a sound financial future.
If you want to learn more about pensions and need expert advice, let Unbiased match you with a financial adviser that meets your requirements.
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