A Closer Look At Pension Transfers

Technically speaking, there a lot of reasons why an individual might consider transferring their pension from one pension company to another. These reasons may be that one’s employer has ceased their contribution for them, better investment performance, higher service fees or issues with confidentially, job transfer, residency transfer and so on and so forth. Each person of course undergoes this process based on their own personal reasons.

Pension transfer has become quite a trend in several countries, particularly in United Kingdom, New Zealand, Australia and Canada. Before going further on this subject, let us just revisit and acquaint ourselves to some of the terms related to it.

Pensions are personal savings or investments that are alloted for retirement. In United Kingdom, this considerably ruled out personal savings in banks, stashing money beneath beds or floorboards and purchasing properties that may turn out to be burdens as far as taxes are concerned. More and more people are starting to prefer investing in their pension simply because this may be the only one that offers tax benefits and exemption.

Types of Pension

In the UK setting, there are three types of pensions available for its constituents: state pension, personal pension and company or occupational pension.

State pension is one of the most basic. This is usually granted to an individual or a citizen upon reaching a certain age. Currently, men are entitled to take advantage of their state pension once they reach the age of 65 whilst women get theirs five years earlier than men.

The amount alloted to an individual on their state pension usually depends on their tax contributions and pension contributions while one was employed. Therefore, a person who has worked full time, might receive a higher amount as compared to someone who worked for a lesser duration.

Personal and occupational pension may be something that can go hand in hand, depending on the preference of the beneficiary. Personal pension is available in banks or pension houses that enables an individual to voluntary allot a certain amount of their earnings for the future. There is no limit on the contribution that one can make to their personal account. One can also obtain the services of several pension houses without interfering with their state pension. Usually, banks or pension companies may earn by investing the money from the contributions.

Another variation of personal pension is the stakeholder pension. This is applicable to business men or women who are self-employed and to individuals working for companies that does not contribute for their employees pension. A contributor may opt to start with a low amount of £20 and up. A stakeholder may start to reap its benefits from age 50.

Occupational pension on the other hand is a benefit provided by an employer to its employees. Although this benefit is optional, most private companies opt to help their employees save up for their future. As mentioned, this can be combined with personal pension because usually, the company that you are working for only commits to contribute a certain amount to your pension. In turn, you are also required to add a certain amount to their contribution usually through salary deduction.

During retirement years, the amount that they get may depend on two things. One, the amount of their total contribution and two, the amount promised by the company at the time of retirement. 

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Pension Companies

Choosing for the best company to take care of your money might be a tedious task. You are, after all putting your money in their hands and allowing them to temporary use it for several investments. The growth or decline of your investment rests in their hands.

A lot of pension companies has emerged from the past couple of years, background check might prove to be a wise move. One must check on the company’s previous investments, growth and stability. 

Now that we have been re-introduced to the concept of pension and the things that usually comes with it, let us go back to the process called transfer of pension.

Although this has been a trend in the past years, you are not advised to do it simply because everyone you know is doing it. The process does not come without risks and potential problems. First of, you would have to consider your main reason and the purpose of the transfer. If it is not something caused by an unavoidable change such as employment or residency, thorough research is a must. You must look into several things like background of the pension company that you are transferring to, their investment, rate of growth and of course, the fee they require for their services. A few of the questions that you might want to add in your research would be:

• Are they a notable company?
• How many years have they survived?
• How many investments have they made in a certain time period?
• Among their investments, how many were successful? How many failed?
• Last, how transparent are they to their contributors with regards to their investments?

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Another rule of the thumb is that, you just do not go on deciding yourself. The government and several agencies will be able to provide you  pension transfer specialists to help you go through the entire gruesome process. This independent financial adviser does not work for any individual pension firm. He usually works to safeguard your interest. He functions to protect you from risks and possible problems that the transfer may cause. You may need to meet up with the specialist more than once to maximize their assistance. Therefore it is necessary to prepare all the documents that he may need to see during his visits. To further help with the decision, you as a contributor have the right to demand for a pension transfer value analysis. This can actually show you several things like a comparison between your old and new pension company and give you an overview of the earnings you may get given a certain number of years.

Lastly, pensions transfers may not be the easiest decision to make but it might be the best for you depending on the turnout of investments.