What is a pension transfer?
A pension transfer is the process of transferring – ie switching or changing the contributons made from one pension scheme to another. Or by exhanging your future annual pesnion from a final salary scheme for a transfer value. Doing this ends your membership of the original pension scheme. Most schemes will allow you to transfer your pension pot to another pension scheme. This can either be an employer’s workplace pension scheme, a personal pension scheme, a self-invested personal pension (SIPP) or a QROPS.
Understanding whether you will benefit from a pension transfer can be complicated and you should take appropriate advice
Should I transfer my UK pension to a SIPP or a QROP’s?
A QROPS and a SIPP are now more similar than ever. However, for people living outside the UK, a QROPS can still offer distinct advantages over a SIPP. QROPS are actually very similar to SIPPs, as they are both defined contribution schemes. However where a SIPP is a UK-registered personal pension scheme a QROPS is based outside of the UK. And can in fact be based in many countries globally. Although not regulated by HMRC a QROPS will be considered a qualifying scheme as long as the scheme meets specific requirements set by HMRC.
The right course of action for you will very much depend on your circumstances and future planning and objectives. For example if you are planning to retire outside of the UK, or if you are already living outside of the UK as an expatriate a QROPS may be a better solution than a SIPP. Equally if you are at risk of exceeding the lifetime allowance it may be a more appropriate option, although this is not conclusive. If you are however planning to retire to the UK a SIPP may be a better option.
Why would a pension transfer be a good option to consider?
Do I need to take financial advice if I want to transfer my pension?
That very much depends on the pension you are considering transferring and the scheme you are transferring to. For any defined contribution pension worth more than £30,000 with a guarantee such as a guaranteed annuity rate (GAR) you will need to need to take advice.
If you are considering transferring a defined benefit scheme that is valued over 30,000 pounds, you will also need take regulated advice from a pension transfer specialist with the appropriate permissions.
Are there any circumstances under which I may not transfer my pension?
It is no longer possible to transfer benefits from an unfunded public sector final salary scheme, such as the Fire service or a NHS pension. You will also not be able to transfer away from a DB scheme if you are already in receipt of your pension.
What does a pension transfer cost?
The fees for financial relating to pension transfers will vary. Often it will depend on the complexity of the case, whether it is a DB or DC scheme you are transferring and whether there is more than one scheme.
Some useful questions to ask your adviser before proceeding are:
You’ll pay a one-off fee if you see the adviser once or a regular fee if the advice is ongoing
Are there any fees paybale to the pension scheme I am transferring from?
This really depends on the rules of the originating scheme, whether there are any penalties for transferring and the rules of the new scheme you are moving to. In cases of final salary schemes or a transfer to a QROPS it is likley there will be a fee involved for the actual transfer process alongside any future management fees
Can I transfer my pension if I am already in drawdown?
Generally yes, however If your current pension is in Capped Drawdown, it will move into flexi access drawdown. And so you will become subject to the Money Purchase Annual Allowance (MPAA).
You cannot transfer an annuity to a QROPS or SIPP or other flexible product.
If you are already in receipt of a final salary/DB scheme you can no longer transfer these benefits. You can generally transfer at any time up to a year before the date that you are expected to start retirement. the schems normal retirment age (NRD)
What is a CETV? How will a trasnsfer value be calcualted?
A CETV is a cash equivalent transfer value. Each DB pension scheme will have its own rules about how it works out the Cash Equivilent Transfer Value. The transfer value will depend on your age, the level of forecast pension when you retire, your retirement date and the annual increases are on your pension.
The CETV is calculated by working out the lump sum that will be required to provide an equivalent pension to the scheme pension at your retirement age. This lump sum is then reduced (discounted) back to todays date to provide the CETV. Ultimately the size of the CETV is at the discretion of the trustees provided they are operating in line with the rules of the scheme.
Will I still be eligible for the PPF?
You are only eligible for the PPF if you are still a member of a DB scheme. Defined contribution schemes such as a SIPP or QROPS are not protected by the PPF. If you transfer away from a final salary scheme and the previous scheme enters the PPF you are not entitled to this protection.
How do I find a lost pension?
It’s important to track down all the different pension schemes you’ve paid into, so that you can be sure you’re claiming everything you’re entitled to in retirement. Some important things to note:
If you left the employer between April 1975 and April 1988, you will have a pension, provided, you were over age 26 and had completed five years in the scheme. If not, you will almost certainly have had a refund of your pension contributions and have no further rights.
If you left the employer after 1988, you will be entitled to a pension, as long as you completed two years’ service. If you left the pension scheme with fewer than two years’ service, you probably received a refund of your contributions at the time you left.
A financial adviser can help track down lost or dormant UK pensions. There is also a new service which is run by the DWP that can help individuals track down pensions. You can find details on the pension tracing service here:
If a guaranteed income is important to me is a transfer not advisable from a final salary scheme?
Giving up the benefits from your final salary pension means you will be giving up any guaranteed income for life. These pensions also offer inflation protection and so will increase over time as you get older.
By moving to a personal pension you will be giving up any guaruntees and any inflation proofing.
Your capital will be invested and you as the individual will bear the risk instead of the scheme.
'It's crucial that individuals carefully consider their capacity and tolerance for loss as well as their risk appetite.
Final salary pensions must, by law, offer benefits to a surviving widow or widower if you die after reaching the scheme's pension age and this should be another consideration. Although this will typically be 50% of the members pension
What are the timelines? How long does a pension transfer take?
This will very much depend on the schemes you are transferring from and to. For example if you are transferring from a DB scheme where you CETV is valued at more than 30,000 pounds the transfer process may take considerably longer than if you are transferring defined contribution schemes. The Pensions Regulator sets out the rules and timelines for transfers from a final salary scheme.
There are various parts to the statutory process of transferring from a final salary scheme that must be adhered to by both the trustees of the new scheme and the old scheme. As well as memeber and financial adviser obligations. Upon receiving the CETV the member has a maximum of 6 months to apply in writing for the transfer, and to provide proof that they have received adequate advice on the transfer. Within 6 months of the guarantee date of the CETV the trustees must make the transfer to the new receiving scheme.
As always, before you make a decision about any financial product you must seek independent advice. For further advice on potentially transferring your pension you can visit these useful websites:
For a more detailed discussion on this topic, get in contact with me today.