Private Pension Transfers
You can transfer a private pension any time up to one year before you become eligible to draw pension benefits. In some cases, you may even be able to transfer private pensions after you’ve started to draw benefits. Pension owners often ask us how to do this and in all cases the exact procedure depends on your particular circumstances.
This article runs through the most important things you need to know on transferring your private pension and covers the following topics:
- Can I transfer a private pension?
- Can I transfer a defined benefit (DB) pension?
- Can I transfer a defined contribution pension (DC)?
- Should I transfer a private pension?
- Transferring from an income drawdown plan
- Transferring from a contracted out rights pension
- Transferring through a block transfer
- Other private pension plans
- Transferring to Local Government Pension Scheme (LGPS)
- Where can I transfer a private pension to?
- When shouldn’t I transfer my pension?
- How do I transfer my private pension?
- How long does a private pension transfer take?
- What else should I know?
- Speak to a private pension transfer advisor
In all cases, you’d be advised to make an enquiry for expert advice. Indeed, the government urges pension members to seek qualified guidance before taking any major steps.
Can I transfer a private pension?
The short of it all is that as long as you move your scheme to a UK recognised pension scheme, you’re allowed to transfer in most cases.
The following exceptions may apply:
- Most schemes don’t allow you to transfer one year before its retirement age.
- You can’t transfer from some overseas pension schemes (QROPS)
- Some plans, like income drawdown plans, disallow transfers.
Whether a transfer is the right move for you is another question, and that’s where the government urges careful consideration. If you do transfer your pension, only do so after seeking professional advice. In fact, you’re legally obligated to seek advice from an FCA-regulated Financial Advisor if you’re transferring assets worth £30,000 or more.
Make an enquiry and we’ll put you in touch with one of the expert professionals we work with for the right advice.
If your private pension is a company plan, we also need to make a distinction between two very different kinds of company pension plans: defined benefit and defined contribution, since each of these has its own transfer rules.
Can I transfer a defined benefit (DB) pension?
This is where your employer pays 100% of your retirement funds, adjusted to rises in the Consumer Price Index. You’re paid for your years of service and the salary you’ve earned. The tremendous appeal of this pension type is that you have a guaranteed income to rely on when you retire that is resilient to market change and that is protected by law.
Examples include unfunded public schemes like the Teacher’s Pension Scheme, the NHS Pension Scheme, the Firefighter’s Pension Scheme, and the Police Officers’ Pension Scheme. Many large businesses, aside from the government, offer this type of arrangement, too.
If you’re a civil servant (with a government job), HMRC only allows you to transfer your unfunded public scheme (say the Armed Forces pension) to another DB scheme, since you run the risk of losing some, or in the worst case scenario, all, of your guaranteed income.
Can I transfer a defined contribution (DC) pension?
The name of this pension scheme tells you all. Your employer deposits a certain monthly amount into your pension pot. If you want to, you can add any amount whenever you wish. The success of this pension fund depends on investment performance and on how much you contribute. Examples include: Personal Pension, Group Personal Pension and a SIPP.
Since the growth of this pot depends on you, you’re given far more leeway than with the DB in transferring your savings to the scheme of your choice. That is as long as this scheme is another registered UK pension scheme.
Should I transfer a private pension?
Holders of private pensions generally consider transferring their private pensions in the following situations:
- You’re changing jobs.
- Your pension scheme has closed or is being wound up.
- You want a cheaper scheme. You’d like a plan that charges you less than what you’re paying right now.
- You want a scheme with better benefits.
- You want to consolidate your different pensions, to make your different investments more manageable, among other benefits. Providers also charge less for larger pots.
- You want to manage your own savings. Most personal pension plans are managed by pension providers and their boards. You may want to control your own investments and have more autonomy over your savings, in which case you’ll look into transferring your private pension to a SIPP.
- You’re moving overseas and want to transfer your pension to a scheme in that country.
- You’re concerned about the performance of your current pension or the risks that come with staying in your scheme
Still unsure whether you should transfer your plan? Make an enquiry and we’ll put you in touch with one of the experts we work with for guidance.
Transferring from an income drawdown plan
An income drawdown plan is a company or personal DC scheme where you draw down a tax-free lump sum of 25%, leaving the rest of your funds invested. These remain invested.
If you decided to transfer from such a plan, your only option is to transfer to another income drawdown scheme.
Transferring from a contracted out rights pension
Contracted out rights, also known as “protected rights”, is where the State Earnings-Related Pension Scheme (SERPS) rebated your National Insurance contribution into a certain investment pension scheme. Since 2012, these protected rights funds morphed into your regular pensions, so rules that apply to transferring your regular pensions apply to these, too.
Transferring through a block transfer
Block, or group, transfers are made when you and at least one other person transfer together from the same existing scheme to the same prospective scheme. Example: Your employer’s pension scheme winds up and all your colleagues move to the new recommended scheme. Before you actually transfer, check out the scheme to see if you lose any of your previous benefits. You may decide to look for another scheme instead.
Other private pension plans
Other private pension plans that you may consider transferring from include:
- Pension Buy-outs: That’s where your employer offers you a hefty lump sum to replace, or buyout, your pension. Similar to your scheme wrapping-up, you may choose to look for another pension plan rather than accept your employer’s cash offer.
- Retirement annuities: Individual pension plans that existed before personal pension plans were introduced (i.e. before July 1998).
- Additional voluntary contribution (FSAVC) schemes: Pension schemes that allow you to make additional discretionary contribution alongside those of your employer.
- Stakeholder pension schemes: Defined contribution plans with a minimum contribution choice.
Each plan has its own rules on transfer, with implications particular to each case. Make an enquiry for guidance.
Transferring private pension into Local Government Pension Scheme (LGPS)
Although Local Government Pension Scheme (LGPS) are defined benefit schemes, they are funded by sponsoring council authorities rather than by the public. For this reason, the government allows you to convert them into arrangements that allow flexible benefits.
Transferring your scheme into a LPGS is slightly more complex. You can transfer from all the private schemes mentioned above, plus a previous LGPS Fund, self-employed pension plan, and, in some cases, from an overseas pension scheme.
One of the few assets you cannot transfer is a pension credit into the LGPS. (A pension credit is a share of the pension credits of a former partner or spouse).
Should I transfer my private pension to LGPS?
If there are transfer options available, whether you should consider them will boil down to your retirement needs and personal circumstances.
There are also rules on joining the LGPS, as well as if you have more than one pension account with the LGPS. These and other rules are complex and depend on personal circumstances. If you plan to transfer to the LGPS, make an enquiry for assistance.
Where can I transfer a private pension to?
There could be a number of options available…
Can I transfer my private pension to a SIPP?
Self-invested personal pensions (SIPP) are pension plans that allow you to manage your own investments. You’re also allowed a far larger range of investments as a result of transferring your private pension to a SIPP than with personal pension plans. Choices include equities and property.
The same UK government rules (e.g., for contribution, age, drawdown etc.) apply as with other personal pension schemes.
Qualifying Recognised Overseas Pension Scheme (QROPS) are UK registered schemes in overseas countries that the UK allows you to transfer your pension to. Expect to pay an overseas transfer charge tax of 25% of the value of your pension transfer. (This charge is lifted in some circumstances; make an enquiry for more information).
If you choose an overseas UK unregistered scheme, your current provider may either refuse to make the transfer, or charge you at least 40% tax on the transfer. In other words, your overseas transfer may cost you almost half of your total pension savings!
Your QROPS scheme is regulated by the country of its location, although you regularly report to HMRC on its income.
When shouldn’t I transfer my pension?
Some schemes don’t allow you to transfer pensions. Aside from that, risks include the following:
- Steep exit charge. Some pension providers charge excessively high transfer costs – think thousands of pounds – that cancels potential benefits from transferring.
- You may lose certain benefits by transferring out of your scheme. New providers may be unable to match these benefits.
- Loss of guaranteed annuity rates (GARs). Some schemes offer higher guaranteed annuity rates when you retire.
- You’re a member of a defined contribution plan that your employer regularly drops money into.
- You’re close to retirement with a healthy pensions pot.
- Risk of losing your income. That’s when you transfer from a defined benefit plan to a defined contribution plan. All that guaranteed income is now vulnerable to market unpredictability. On top of that, the defined benefit scheme also offers generous death pension benefits to your spouse, partner or dependents upon your death not replicated elsewhere. You may also get untaxed early retirement benefits for ill health.
In short, “the grass may look greener on the other side”, but some owners may lose more than they gain by transferring their pensions.
Uncertain whether or not to transfer your pension? Make an enquiry and we will connect you to experts who can help you assess your situation.
How do I transfer my private pension?
The process is simple:
- You ask your current pension provider if they allow you to transfer.
- You look into and select a scheme; then ask that provider whether they accept your transfer. You’ll also want to know their costs.
- Your prospective scheme will want to see your latest pension statement (to see how much you earn). They may want to see your pension valuation, namely the value of your pension assets.
- Before you proceed with the transfer, ask a financial advisor for a transfer value analysis report that gives you a cost-benefit analysis of the switch. Want some advice? Make an enquiry to be referred to independent, qualified pensions advisors.
Most providers lead you through the entire process online through a standardised form, although some older or smaller companies still use mailed ‘transfer discharge forms’.
If you’re transferring overseas there may be added complications:
- You’ll want to look for a UK registered pension scheme, otherwise you end up paying at least 40% extra as tax.
- You may have to continue paying UK tax on income added to that overseas scheme after you transferred your pension).
- If you’re under 75, your UK pension scheme administrator will tell you if the amount you’re transferring is more than your lifetime allowance and whether you’ll be charged on that excess.
Note: Most pension schemes give you a 30-day cancellation period. Before you transfer, check to see if your former scheme will take your money back if you cancel.
How long does a private pension transfer take?
Private pension transfers generally take one to six weeks, depending on what you wish to transfer.
- Cash holdings can take 2 weeks.
- Equities, otherwise called a transfer “in specie”, take between 4 to 6 weeks. “In specie” refers to transfer of assets like shares in their actual form.
- Investment funds take 6 to 8 weeks.
- Foreign holdings, like foreign currency, can take 10 to 12 weeks.
What else should I know?
Questions to ask yourself include:
- Will I get better benefits with the new scheme? If so, do I have enough time for these benefits to work for me?
- What’s the drawdown age of this scheme? Is it earlier or later than my present one? (See our guide for pension drawdown rules.)
- What are the fees of the new plan compared to those of the old?
- Am I losing anything important by closing my present scheme?
- How much protection do I get with the new scheme?
- What’s the exit charge? Some schemes charge a transfer rate as high as 10% of your pension. (You’ll find these rates on the The Pension Advisory Service website.)
You may also want to consider the following:
- The new schemes’ administration and customer service: Is it sensitive to your needs? Helpful? Honest? What’s its reputation?
- The schemes rules. What are the policies around drawdown age and contributions, among other aspects? (See our Pension Drawdown Age Guide for details.)
- The scheme’s choice of investments and its administrative character. How involved do you want to be in investment decisions? Some schemes bind you to their pre-picked limited asset mix, while others expand their options to property and other assets and allow you a certain amount of control.
Speak to a private pension transfer advisor
Looking for more information about transferring your private pension? Call us today on 0808 189 0463 or make an enquiry here.
Then sit back and allow us the hard work in finding the just the right private pensions transfer advisor for your situation. We don’t charge a fee and there are no obligations.