Many clients ask us this question and if this is something that has been on your mind, it’s important to look at all the information carefully before deciding if it’s in your best interest to do so. There are many factors that mean if you aren’t careful, you could potentially lose out.
Why are you looking to transfer?
Perhaps you are looking to increase the control you have over your pension, hoping for a better return, starting a new job or your existing pension is closing. Whatever the reason, your key considerations should be the same.
Many providers offer great benefits to keep your pension on their scheme, such as a financial bonus like a guaranteed annuity rate, life assurance cover, guaranteed growth rates or a preferential rate of tax free cash. This alone could be enough of a financial incentive to mean it wouldn’t make sense to transfer to a new provider.
You may have been tempted by an attractive offer from a different provider but always consider if the headline offer is as good as it may first seem when you take everything into account. Pension rewards can rarely be carried between providers, and you may be faced with costs for making the transfer. Your financial adviser can help you look after your pension either with the current provider or with a new provider.
What would the cost be?
There may be exit costs involved if you decide to leave or transfer your current pension plan and this amount tends to vary between providers. Very rarely there may be no exit fees to pay, so it’s certainly something worth looking into. Your adviser would also likely charge you for their time, work and advice.
Will I lose out on my bonuses?
As briefly mentioned above, there are often certain bonuses included in pension schemes to encourage long-term savings, which is essentially what pensions are all about. You need to be very careful that transferring your pension won’t mean you are going to lose out on any attractive financial benefits. For example, if you were to lose a life assurance policy by transferring, potentially it could actually cost you more to replace the life assurance than you stand to save.
It’s vital to weigh up the pros and cons thoroughly as once you have made the decision to transfer, there will be no going back if you later decide it may not have been the best decision after all.
Other things to consider
Although more common with older pension schemes, guaranteed annuity rates mean that at a certain age, part or all of your pension pot will be transferred into a guaranteed lifetime income. If this applies to your pension, you will normally get a much better rate with an existing scheme than you would buying an annuity from a completely new one.
If you are thinking about transferring to increase the control you have over your pension or to bring them together in to one pot, it is important to ensure that this represents good value for money and that the underlying investments are appropriate. A financial adviser can help you understand your options and provide their advice.
If your pension benefits from guaranteed growth rates, a financial adviser could help you understand the growth rate required to meet your requirements during requirement via a cashflow forecast. You could work with your financial adviser to understand whether losing such a guarantee is needed. You may be able to meet your objectives just fine as things stand.
One reason that individuals often switch their pensions to a new provider is due to the death benefits. Some legacy pension providers would provide a full fund pay out upon death. Pensions do not normally form part of your estate and therefore this scenario may be of consequence to your family.
If your pension has protected tax free cash, your pension provider will ask you to complete a questionnaire which will enable them to determine the level of protected tax free that is available. This could range considerably.
You should also remember that it can often take time to transfer a pension and whilst the transfer is taking place, your pension isn’t invested so you could potentially be losing out on any fund rises taking place during this time.
Summary
Sometimes it can make perfect financial sense to transfer your pension but only if the positives outweigh the negatives when you take every factor into account. Sometimes it may make perfect sense to leave your pension where it is and simply review the underlying investments held within your current contract. The best way to ensure everything has been covered is to seek expert financial advice at the outset.
Our specialist financial planning team can look at your current pension and advise on whether looking to transfer would be a sensible option based on your personal circumstances. For further information or advice, contact a member of our financial planning team today by emailing enquiries@pmm.co.uk or call 01254 679131.
The information contained within this article is purely for information purposes and does not constitute financial advice.
