Pension Transfer Fees & Charges

There are many reasons why you might want to transfer your pension. You might have multiple pensions that you’d like to consolidate in one place, for example. You might want to switch to a pension that gives you more control over your investments. Or you might want to move your pension overseas.

Whatever the reason, you’ll likely want to transfer as cheaply as possible. In this article, we’ll explain the costs involved and how to keep them low. We’ll also tell you some of the things you must consider before you transfer.

We’ll cover topics including…

How much does it cost to transfer a pension?

Transferring a pension shouldn’t be expensive, particularly if you have a newer pension. The Financial Conduct Authority (FCA) has put a lot of rules in place to ensure that customers aren’t overcharged for actions like this, so most major pension providers now have no charges for joining, leaving, or transferring.

However, it’s still worth checking the list of fees charged by both your current provider (who you are transferring your pension away from) and your new provider (who you are transferring your pension to), to avoid any unpleasant surprises. Specifically, look for:

• Exit fees. It’s possible your existing provider will charge a flat or percentage fee for closing your account. With some older pensions, this can be up to 10% of your pension value.
• Set-up fees. Your new provider may charge a fee to new customers if you don’t already have a pension with them. This isn’t common these days.
• Market Value Reduction (MVR). This can apply to pension plans invested in with-profits funds and can reduce the transfer value of your pension plan.

You should also look at the annual management charge (AMC) for both providers, and any other ongoing charges. If these charges rise as a result of your transfer, e.g. you move your pension from a provider with a low AMC to one with a high AMC, the transfer could cost you money over many years if the funds you invest in do not outperform the funds available to you in your old pension plan.

In a small number of cases, transferring a pension away from your current provider could result in losing certain safeguarded benefits that this provider offers, like a guaranteed minimum pension. You may also be entitled to a protected tax-free cash that allows you to take more than 25% tax-free cash at retirement. Depending on the details of your situation, a transfer like this could end up costing you a lot of money or you could unintentionally give up special benefits that your current pension provides you with access to. You’d need to discuss it with an advisor first.

Exit fees over the age of 55

If you’re over the age of 55 but under the normal retirement age for your scheme (typically 65), the exit fee for transferring out your pension can’t usually exceed 1% of the total pension value. Certain types of pensions are not allowed to charge you exit fees at all if you’re over 55.

Could transferring a pension save you money?

Yes! It isn’t always the case, but here are some of the common ways you could save money by transferring:

Switching to a provider with lower fees

Pension annual fees can vary greatly but are usually somewhere between 0.25% and 1.00%. This is a difference of several hundred pounds a year if you have a balance of £50,000 or more. Over several decades, switching to a cheaper provider could save you thousands.

Reaching a new tier with a provider’s AMC

Many major providers charge their ongoing fees in tiers based on your pension value, with the lowest tier being the most expensive (for example, 0.45% on the first £250,000 and 0.25% above £250,000). Others offer rebates when certain thresholds are reached.

So, if you have pension savings in several different schemes at the most expensive tier, consolidating them in one scheme could help to reach a cheaper tier and pay less.

How a pension advisor can help with your transfer

If your goal is to transfer and save money over the long term, here are some of the ways it could benefit you to speak to an independent pensions advisor first.

Checking that you won’t lose anything by transferring

Many people don’t know the exact details of how their pension works and what they can expect to get from it in retirement, so you could have a pension that’s more generous than you’re aware of. Speaking to a pensions advisor will help you avoid losing valuable benefits in the transfer.

Finding the most cost-effective pension for you

Whether you’re transferring one pension to a different provider or consolidating multiple pensions in the same place, it’s a good opportunity to shop around for the best pension for you. A pensions advisor can help you to compare features and fees.

Ensuring you avoid scams

Unfortunately, pension scams do exist and, sometimes, fraudsters will encourage or pressure you to transfer your pension to them. Checking first with a pension advisor will protect you from losing your savings.

If you’d like to speak to an independent pensions advisor today, get in touch.

How much does it cost to transfer a final salary pension?

Most pensions, these days, are defined contribution (DC) pensions, where the value of the pension is linked to how much you’ve paid in. You can move a DC pension relatively easily from one provider to another.

The rarer alternative is a defined benefit (DB) pension, also known as a final salary pension, where the value of the pension is linked to your salary and how long you’ve been with your employer. Moving a DB pension involves calculating its transfer value and moving that amount to a DC pension.

While there isn’t necessarily a fee to do this – in fact, you may be offered a cash incentive – it can be costly in the long run. DB pensions often provide a generous retirement income for long-term employees, so you could be substantially reducing your future income by transferring.

You should always speak to an independent advisor before beginning this type of transfer. This is a legal requirement if your DB pension is valued at over £30,000.

Speak to a pension transfer expert

With pension transfers, there’s a lot more to consider than just the fees. Until you speak to an independent advisor, you won’t know how much they can help you. So, why not schedule a free, no-obligation chat?

We work with numerous advisors with experience in pension transfers who can talk you through the process and anything you need to think about or be aware of. To speak to someone about your situation, give us a call on 0808 189 0463 or make an enquiry.