8 Hot Tips for UK Pension Transfers

Motion in nature can be poetic. Have you ever watched an eagle soar through the sky, a swan glide across a lake, or a leaf flutter towards the ground? Such sights have the gracefulness of a ballerina leaping across the stage, as though she were gazelle crossing a lush meadow.  

While the movement of finances has less aesthetic value, this action is sometimes necessary. We may need to transfer funds from one institution to another institution, from one account to another account, or from one scheme to another scheme. A pension transfer includes such a relocation of capital, of which you may need to engage.

As you might guess, a pension transfer involves a pension and a transfer. More technically, it involves swapping or altering the value of one pension scheme’s contributions, to a different pension scheme. You should keep in mind that once the transfer is complete, your connection to the first pension scheme ends. Here are some Do’s and Don’ts to adhere to, if you are considering a pension transfer:

1. If the final salary pension scheme of your employer is in deficit, cautiously consider uk pension transfers. 

However, make sure to consider an IFA’s advice prior to making your decision. Also, contemplate some factors. That includes why the scheme is in deficit; your transfer value could be lower than the deficit of the scheme; and the chance of losing your entitlement to the government’s scheme to safeguard employees, in this situation.

2. Consider if a pension transfer is right for you.

As the old adage goes, “If it is not broken, then do not fix it.” Depending on your particular financial situation, you may or may not need a pension transfer. Simply because a family member or friend benefited from one does not imply that you would benefit as well. Nevertheless, here are some situations in which you should certainly consider moving your pension to a difference scheme:

 Your personal pension’s fees are too high, so it would be prudent to transfer the funds to a different personal pension, with low fees. 

        

 You want to transfer your personal pension scheme to a work pension scheme in order to avail of lower employer contributions and lower fees.

The current pension scheme of your particular company is ending. 

 3. Note that you cannot transfer some private pensions and company pension transfer. Generally, this is the case if you are working in the public sector. However, the news is not entirely bad. Engaging in a pension scheme while in particular situations could result in huge pension claim decreases. In any case, here are some cases in which you cannot engage in a pension transfer:

  You have a final salary pension scheme whose pension increases parallel to inflationary rate increases.

  Within one year, you will reach the retirement age of your pension scheme. 

  4. Protect your own interests if your employer offers you a cash lump sum to transfer from an occupational pension (final salary) scheme to a personal scheme.

Many companies are providing such an offer, due to the skyrocketing cost of maintaining final salary pension schemes. Nevertheless, your company is attempting to save funds. Thus, contact an IFA to determine if transferring to a new pension will benefit YOU. 

5. Base your decisions on your pension type.

Before determining if you should perform a transfer of pension, you need to determine which type of pension you currently have. Two main types exist:

A. Final Salary /Defined Benefit Pension

When you leave a company or retire from it, your salary at that time is your “final salary.” In this type of pension scheme, calculations based on a set percentage of your final salary determine your pension size.

B. Money Purchase/Defined Contribution Pension

In this type of pension scheme, your company invests your contributions to the pension scheme. Then, upon your retirement, your company adds the profits to your original contributions and then buys an annuity. The annuity will provide you with a fixed, guaranteed income until you die.    

6. Use caution when transferring from Money Purchase Pensions.

When transferring funds from this type of pension, remember that your contributions’ present value will determine the pension’s value. However, keep in mind that the market is extremely volatile. Thus, this is possible that the new pension scheme may not guarantee your pension’s transfer value.     

Furthermore, remember that the statement that you receive indicating the calculation of your pensions transfer value, will not necessarily indicate the true transfer value. The final transfer value could be above or below the initial figures that you received.  

 7. Prepare to pay pension transfer fees.

You might be required to pay fees for a transfer pension. Pension providers typically subtract these fees from the transfer value when the pension transfer transpires. This can be a significant percentage of the pension’s transfer value. Thus, you should factor in fees when determining whether to transfer your pension. The fees that you must pay could cancel out any benefits that the new transfer scheme has.

8. Seek advice from an Independent Financial Adviser (IFA).

You can locate an IFA by flipping through the phone book, though personal recommendations tend to be a more reliable means. By definition and by law, an IFA will scour the entire pension market to find the best pension for you. The Financial Services Authority regulates IFAs, to ensure their integrity. If an IFA fails to provide you with the best advice available, then you could be eligible to receive compensation. 

An IFA uses a variety of tools (i.e. knowledge, experience, computer programmes, and access to special deals only available to insiders in the business) to find the ideal pension scheme for your particular situation. An IFA could also make suggestions about which pension product into which it would be ideal for you to transfer your pension.