Transferring Small Pension Pots
We receive loads of enquiries from people with one or more small pension pots, some of which are no longer active, who want to know if there could be value in making a transfer to another pension fund.
To answer these questions we’ve put together this article which covers:
- What constitutes a small pension pot?
- Why transfer a small pension pot?
- Should I transfer a small final salary pension?
- Do I need to take professional advice before transferring a small pension pot?
- How do I make a small pension transfer to another scheme?
- Speak to a small pensions expert
Once you’ve read through the details below make an enquiry and we can arrange for a pensions advisor we work with to contact you to discuss your own personal circumstances.
Is transferring small pension pots possible?
Yes, although there is no uniform definition of what constitutes a ‘small’ pension pot. The thing to keep in mind is that some pension providers have minimum transfer values for certain scheme types and this will affect whether you can move the fund elsewhere.
Small Defined Benefit (DB) pensions
The general rule of thumb for DB schemes suggests any cash-equivalent transfer value (CETV) below £30,000 would be considered small. Members with CETVs below this amount are not legally obliged to seek professional advice before the transfer can be completed.
Regardless of any legal requirement, it is strongly recommended to seek advice before proceeding with a transfer of this nature. If you get in touch we can arrange for an expert to contact you and discuss further.
Small Defined Contribution (DC) pensions
Most DC scheme providers require a minimum transfer value of at least £1,000, some will require at least £2,000 and a few will not require any minimum amount at all for specific personal pension plans.
Stakeholder Pension Schemes
Stakeholder pension schemes are considered the most flexible of all the types of pensions available in the UK. Providers will accept all transfer amounts regardless of the value.
Why transfer a small pension pot?
There are a number of considerations to take into account when contemplating whether to transfer your pension fund from one scheme to another. Ultimately it really depends on your own personal circumstances rather than the value of your fund.
What are the benefits of small pension pot transfers?
It’s not unusual for someone to have various small pension pots spread across a number of different schemes and providers as you move around from different employers or occupations.
A key benefit of small pension pot transfers is fuelled by a desire to bring all of these different funds together under one pension umbrella.
Other potential advantages include:
- Better benefits on offer from an alternative scheme
- Access to Pension Freedoms features
- Cheaper charging structure available with a different provider
- You’ve recently moved abroad and have the option to participate in a QROPS scheme.
What are the drawbacks of small pension pot transfers?
Despite the size of your pension fund, transferring to another scheme or provider may result in a loss of potential future benefits for both yourself and your family if you were to die whilst still a member, particularly if it is a defined benefit scheme.
Other possible disadvantages include:
- Cost of advice and transfer charges would further reduce an already small pension pot
- No guarantee that the new scheme or provider will be able to offer a better investment return than you currently receive
If you’d like to know more about the potential benefits and drawbacks of pension transfers take a look at our dedicated article.
Should I transfer a small final salary pension to a different scheme?
As a rule, it is not typically recommended to transfer out of a final salary pension scheme into a different type of pension as, regardless of its value, the potential long-term benefits can far outweigh what other pension schemes can offer.
If you believe there may be legitimate reasons why you should transfer your benefits from a final salary scheme into a different pension it would be best to seek professional advice before taking any further action.
If you make an enquiry we can arrange for a pensions specialist to get in touch and discuss this further with you.
Do I need to take professional advice before transferring a small pension pot?
Yes, it’s definitely recommended. In certain circumstances, it can actually be a legal requirement before any transfer takes place, specifically when final salary schemes have a CETV worth over £30,000 or where a defined contribution scheme offers a guaranteed annuity rate.
Whilst it’s highly unlikely a small pension pot will fall into either of these categories, it is still best to seek advice before proceeding with a transfer. If you get in touch we can arrange for an advisor we work with to speak with you.
How do I make a small pension transfer to another scheme?
To proceed with a pension transfer you first need to inform your scheme administrator in writing of your intentions and request an up to date transfer value. Depending on the type of pension you have, you will usually have a number of days in which to complete the transfer.
Speak to a small pensions expert
The value of your pension fund, small or large, should not deter you from transferring these funds to a different scheme or provider if the circumstances dictate that this is the right course of action for you to take.
As pension transfers can be quite a complex area of financial planning it’s really important you seek professional advice before making a final decision.
If you have questions and want to speak to an expert for the right advice, call Online Money Advisor today on 0808 189 0463 or make an enquiry here.
The advisors we work with have a wealth of experience in areas such as this and deal with customers in your situation all the time.