How to transfer a drawdown pension

Learn how to transfer a drawdown pension plan to another provider and how this could affect your retirement.

What is a drawdown pension?

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.

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 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.

Should I transfer my drawdown pension to another provider?

If your pension is in drawdown, you still have the option to transfer it to another provider.

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.

For example, your current provider may charge an exit fee if you transfer your funds to a new provider. You may also have to forego various benefits, such as a guaranteed annuity rate or life insurance.

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. 

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. 

Safeguarded benefits include guaranteed annuity rates and a guaranteed minimum pension.

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:

1. Gather together details of your existing pension.

2. Make an appointment with Pension Wise to discuss transferring your pension (some providers require this).

3. Consult a financial adviser. 

4. Fill in the forms, which may include a drawdown investment strategy form, which asks how you plan to invest. If you’re not sure how to invest, pension providers offer investment pathways with simple investing choices for pension savers in drawdown.

If you opt for a pension transfer as cash, you should have your funds within 10 business days. Drawdown transfer into other investments will take considerably longer.

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.