A Complete Guide to Pension Transfers

If you’re looking at what options you have with your retirement savings, you might be exploring the possibility of a pension transfer. However, before you make any moves, it’s important to have a complete understanding of the process.

This guide covers everything you need to know about how to transfer a pension. We’ll explain all the rules that apply and the various options you have. You’ll also learn about calculating pension transfer values, the costs involved in moving, and where to get expert support to help.

Keep reading for a complete explanation of UK pension transfers, or click on a link below to jump straight to a section…

What is a pension transfer?

This involves moving or consolidating your pension somewhere else. It’s common for people to move from one scheme to another for a variety of reasons. The main motivations for carrying out a pension transfer include:

• Getting the best deal
• Keeping all your retirement funds in one place
• Accessing more flexible retirement options

How the transfer process works

The exact process will depend on your current pension type and structure, but here’s a brief outline explaining how a transfer works:

• Ensure you’re clear on whether you have a defined benefit (DB) or defined contribution (DC) pension because it will affect the transfer.
• Request a pension valuation of your benefits and a ‘statement of entitlement’ from your existing scheme administrator (or the trustees of the pension provider).
• Notify your existing provider of your intention to transfer funds to a different pension.
• Make sure that the scheme where you wish to move will accept a transfer.
• Give your pension provider your personal information and details of the new scheme.
• Before making a transfer, your existing pension provider has a duty of care to make sure your transfer meets regulatory requirements. This usually involves checking whether the new scheme is on the Pension Regulator’s pre-approved list and finding out basic details about the move.
• Your provider will decide whether to accept your transfer request.
• If everything checks out, a transfer of your funds to your new provider will begin.

It’s well worth having some expert guidance throughout this process because it can be complex – especially if you have multiple pensions or retirement funds with a complicated structure.

Rules, regulations, and options

Pensions are tightly regulated in the UK. So, there are numerous rules that apply, which could limit your transfer options. However, you can still have a decent amount of flexibility with support from an expert advisor who can help you navigate all the regulations. Below are some of the main pension transfer rules to be aware of.

Within the UK

In most cases, you can transfer or consolidate your pensions in the UK as long as you follow the proper procedure and everything checks out with your new scheme. Defined benefit pensions can be slightly more challenging and only possible with certain schemes. Pensions for teachers, police, and NHS staff are not transferable.

Transfer to someone else

You cannot transfer your pension to another person. Yet, upon death, your pension benefits may be payable to someone else. And in a divorce, it’s possible for your ex-partner to receive some (or all) of your pension via a Pension Sharing Order (PSO).

Moving abroad

If you plan on moving to another country, you may be able to transfer your pension pot to an overseas scheme if it’s a ‘qualifying recognised overseas pension scheme’ (QROPS). If you want to transfer a UK pension to the USA, this can be tricky because the US government doesn’t recognise QROPS transfers or meet HMRC’s requirements.

If the scheme isn’t a QROPS, your provider might reject your transfer, or you may have to pay at least 40% tax on the transfer. There are instances when you pay no tax to transfer, but for some international pension transfers within the European Economic Area (EEA) or outside of it, a 25% tax can sometimes apply.

Transfer a SIPP

SIPP transfer rules mean that if you want to move your SIPP (self-invested personal pension) to another provider, it’s definitely possible. SIPPs, by nature, are self-managed. Transfers can be relatively straightforward, allowing you to organise a transfer yourself.

However, it can still be worthwhile seeking some expert transfer advice. Especially if you have any complex SIPP investments (for example, commercial property) held within the tax wrapper.

How to transfer your pension

If you do want to move or consolidate your pensions, you’ll have plenty of choices. Here are some universally helpful steps to follow if you want to make sure you get the result you’re looking for when moving your retirement pot.

If you’d like a free pension review and a chat with a transfer specialist, just make an enquiry. We’ll introduce you to an independent pensions advisor for free.

Calculating your pension transfer value

A key part of the transfer process involves calculating what your pension (and any linked benefits) are worth before you can proceed with moving it somewhere else. Whether you have a defined benefit or defined contribution pension will be a significant factor.

Defined contribution (DC)

You’ll get an up-to-date fund transfer value in your statement of entitlement. But, this amount can fluctuate (based on the underlying investments) and it isn’t guaranteed for a specific period of time.

Defined benefit (DB)

Calculating your pension transfer value for a DB pension isn’t entirely straightforward and aims to come up with a ‘best estimate’. The Pension Regulator lays out the framework for working out your pension’s ‘cash equivalent transfer value’ (CETV).

Pros and cons of transferring pensions

There are both benefits and drawbacks to carrying out a pension transfer. What’s right for you will depend on your personal finances and retirement goals. Here’s a brief summary of the major motivations and downsides to consider:

Costs and fees

The exact costs and fees when transferring your pension will often be based on the size of your pension pots and the complexity of your transfer arrangement. Although, some providers will charge a flat fee for transfers.

Whether you pay a fixed fee or a percentage based on the pension transfer value – keep in mind that you could potentially recoup these costs. This is achieved by moving to a cheaper provider, switching to a scheme with better investment opportunities, or keeping your pensions somewhere allowing greater flexibility for taking tax-efficient income.