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        Updated: May 31, 2023

        Deferred Pension Transfer

        Want to know how deferred pension transfers work? Check out this detailed explanation, along with tips on whether it might suit your retirement needs.

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        Author: Richard Angliss - Finance Expert

        Updated: November 20, 2019

        If you’ve been exploring the possibility of pension transfers, you may be wondering if you can still carry out a transfer with a deferred pension – and whether it’s worth doing so.

        This guide covers all the essential details you need to know about transferring a deferred pension. We’ll explain how different pension types impact the process, how to calculate the pension value, and where to get some expert guidance.

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

        What does deferring your pension mean?

        This is when you delay taking money or benefits from your pension. By delaying access to your pension pot savings, it can help boost or increase your benefits. You can stop paying into a pension or continue making contributions when you defer.

        Can you transfer a deferred pension?

        Yes, this is possible. However, the complexity of the process and whether it’s worth doing will depend on the type and structure of your existing pension. Below are some examples of different transfer scenarios.

        Defined contribution (DC) scheme

        This scheme would be the most straightforward if you wanted to transfer a deferred pension. Most modern workplace and personal pensions are defined contribution. So, they are valued based on how much you put in and how the underlying investments perform.

        Deferring a DC scheme might make sense if you: reach normal minimum pension age (currently age 55 but this is increasing to age 57 on 6th April 2028) but want to keep working, don’t yet need pension income, or can’t afford to retire on your pension just yet. You may then wish to transfer your defined contribution pension for many reasons, such as:

        • Moving to a cheaper pension provider.
        • Changing to a scheme with a better choice of investments.
        • Consolidating all your pensions under one roof making them easier to manage.

        Defined benefit (DB) scheme

        Transferring a defined benefit pension that has been deferred is possible but you should take advice from a pensions expert before doing so. A DB (or final salary) pension usually comes with benefits that are harder to value accurately, making the calculation of a transfer value more complicated.

        Because the income you receive from this type of pension doesn’t depend on the value of underlying investments, holding off from accessing it and deferring may not necessarily lead to a higher income. So, it may not make sense to transfer a defined benefit or final salary pension since it’s usually not in your best interest to defer it in the first place.

        However, there are rare instances when transferring a deferred DB scheme to a DC scheme might make sense for you based on your personal circumstances:

        • If you have limited life expectancy due to a terminal illness
        • A DC scheme can provide more flexibility for accessing your pot.
        • Sometimes pension providers will offer an attractive transfer value for your DB pension if they want to reduce their long-term liabilities.
        • Transferring your deferred pension to a DC scheme means you can pass on any unused funds or benefits to your beneficiaries.

        State pension

        Deferring your State Pension can be worthwhile, especially if you’re not planning to rely solely on it during retirement. If you want to delay or defer your State Pension, this will happen automatically. You have to claim it, so if you don’t, it will be deferred until you begin claiming.

        However, you get very little flexibility with your State Pension because the government provides it. So, although it’s easy to defer, you cannot transfer your State Pension or move it to be held somewhere else. The UK government will always control this pension.

        Speak to an expert today

        How to transfer a deferred pension

        Here are some straightforward steps you can take if you’re thinking about deferring and transferring your pension:

        Speak to a pension transfer specialist

        Before you start making any moves, it’s well worth getting expert transfer advice first. If you speak to an independent pensions advisor who specialises in transfers, they’ll be able to look at all of your pensions and retirement goals, then advise you on the best course of action.

        Check your current pension scheme

        Once your expert advisor has completed a pension review and an assessment of your finances, the next step is to conduct some due diligence before initiating a transfer. Your advisor will help with checking your existing scheme to see if there are any rules, restrictions, charges or penalties if you want to transfer your pension elsewhere.

        Start your pension transfer

        After your pensions advisor has reviewed everything and deems it in your financial interest to transfer your deferred pension, they’ll walk you through the entire process. This will involve notifying your existing scheme and getting you set up with your new provider. The time it takes for a transfer can depend on the complexity of your pension.

        If you want to speak to a pension transfer specialist for some expert advice, just make an enquiry. We’ll arrange a free, no obligation chat today.

        Calculating the transfer value of a deferred pension

        The process for calculating the value of your pension will be dictated by the type of pension you have:

        Defined contribution (DC): the transfer value will be pretty straightforward to work out. The figure will be based on how much you’ve put in and how well the underlying investments are performing. When you request a transfer, your provider will give you a ‘statement of entitlement’ with a current value – which can fluctuate.

        Defined benefit (DB): calculating this value isn’t as easy. When you request a transfer, your provider will estimate your ‘cash equivalent transfer value’ (CETV), guaranteed for 3 months. But, this transfer value figure can be influenced by your age, life expectancy, personal circumstances, current inflation, and the pension value transfer index. Working it out isn’t an exact science.

        Where can you transfer your deferred pension?

        The main options for transferring your deferred pension include moving it:

        • To a SIPP (self-invested personal pension).
        • Onto a new employer’s workplace pension scheme.
        • To a different personal pension scheme provider.
        • Into a stakeholder pension (SHP) scheme.
        • Overseas if you’re planning to move abroad.

        The right option for you will depend on your financial goals in retirement and your current circumstances. Discussing your situation with an expert pension advisor is the best way to get independent advice on the correct transfer type.

        Other considerations to be aware of

        Here are some key points to keep in mind about what you can and can’t do if you’re looking to transfer a deferred pension:

        • Unfunded DB: if your deferred defined benefit (or final salary) pension is an ‘unfunded’ public sector scheme (e.g. police, teacher, NHS staff) you can only transfer to another DB scheme.
        • Private/funded DB: with a private sector DB scheme or a funded public sector pension (e.g. Local Government Pension Scheme LGPS), you should typically be able to transfer your deferred pension to any type of scheme.
        • DB death benefits: if you die before you retire, a deferred DB pension usually pays out a lump sum of 2 to 4 times your salary to your beneficiaries (tax-free if you’re under 75).
        • DC death benefits: a deferred DC pension can pass on to your beneficiaries tax-free if you die before age 75 and they claim it within two years (paid out as a lump sum, drawdown, or used to buy an annuity). If your pension is still deferred and you die after 75, income tax may have to be paid at the beneficiaries marginal rate when your pension is passed down.
        • State Pension: if you defer your State Pension, it can be transferred to a partner when you die, and the exact benefits depend on how long your State Pension was deferred.
        • Another country: you can transfer your deferred pension to an overseas scheme as long as it is on HMRC’s list of ‘Qualifying Recognised Overseas Pension Schemes (QROPS), but keep in mind that some transfers will incur a 25% tax charge. Transferring abroad outside the QROPS list is possible, but you may have to pay at least 40% tax.
        • To someone else: you can’t transfer or gift your deferred pension to another person (for example, your children) while you’re still alive. If you divorce, part or all can go to a partner. If a Pension Sharing Order (PSO) is granted, this means a proportion of your pension is transferred away to the ex-partner, while Earmarking orders mean that no transfer takes place.

        Speak to a pension transfer specialist

        Transferring a deferred pension can be complex and confusing without expert advice to guide you throughout the process.

        We offer a free advisor-matching service. This means we’ll quickly assess your retirement needs and then pair you up with an experienced pensions advisor.

        Just call 0808 189 0463 or make an enquiry, and we’ll introduce you to a specialist pensions transfer advisor for free.

        Speak to an expert today

        FAQs

        Yes, this is possible. It will depend on your existing scheme and where you want to transfer. Advice from an experienced pension advisor is the best way to see all the options for transferring your pension annuity.

        Ask a quick question

        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions. Ask us a question and we'll get the best expert to help.

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        Richard Angliss

        Finance Expert

        About the author

        Richard Angliss has made a career in financial services which stretches over 40 years.

        His early career was spent learning about the various financial products and applying them to prudent advice, working for one of the largest life assurance and investment firms. After that he joined the financial services arm of a very well-known firm providing independent advice to their 8 million customers.

        For the last 20 years he has been involved in building software solutions that help Advisers and clients work together to achieve good financial outcomes and helping to set up three independent advisory firms. He also has written many articles for financial services publications and provided commentary for newspaper journalists.

        At an early stage in his career he realised the great satisfaction that comes with being able to help people achieve their goals and protect their families. “Regulation of financial services has hugely impacted on ensuring people get appropriate advice. The issue these days is access to that advice and just as importantly regular reviews to make sure that everything stays on track”.

        With the growing development of online resources such as Online Money Advisor he sees a great future for people to access advice to make their pension and investment work harder for them.  Plus, of course, to ensure they have insurance products in place that will be required when unforeseen events happen.

        He knows getting that balance right is crucial to prudent financial planning and the wellbeing of individuals and their families.

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