A Guide to Pension Transfer Options

Regardless of the kind of pension you want to transfer, there are a few things that you should bear in mind first.

Check that you can actually transfer as much as you want, and that your new provider will accept it

You’ll need to see if your current pension scheme allows you to transfer out the sum you want to move, and that the scheme you want to move into will accept a transfer.

Make sure you’re transferring to a registered UK scheme

If the scheme you’re transferring to is not registered, HMRC will deem the move to be ‘unauthorised’ and will hit you with massive tax surcharge. This also applies if you try to withdraw a lump sum.

If you’re unsure about the scheme that you’re transferring into, you can ask your new scheme to provide you with its ‘Pension Scheme Tax Reference’ (PSTR) number. This is a 10 character number, consisting of 8 numbers followed by 2 letters, e.g. 12345678AB.

You can also contact the Pension Service or one of the pensions experts we work with to have this verified for you.

In pension transfer, a benefit crystallisation event (BCE) is essentially a test carried out every time you withdraw money from your pension pot.

A BCE is tested against your lifetime allowance and, if you exceed your allowance, you’ll be charged tax on the excess. At the time of writing, there are 13 different kinds of BCEs and your lifetime allowance is £1,055,000 in the tax year 2019–20.

In the context of your transfer options, every BCE reduces the amount of money, with tax relief, that you can transfer to an authorised scheme.

If you’re looking to transfer abroad, you have two main options.

Option 1: Transfer to an Overseas Pensions Scheme – ‘QROPS’,  ‘ROPS’ or ‘QOPS’

Who’d have known HMRC enjoyed so many acronyms? HMRC has a number of ‘authorised’ foreign pension schemes that are eligible for tax relief, including QROPS, ROPS and QOPS.

HMRC publishes a regularly updated list of ROPS here, but if you’re unsure you should definitely get a confirmation in writing from your provider. Speak to a professional advisor if you have any doubts.

Option 2: Transfer to an ‘International SIPP’

An alternative is to consider an international SIPP.

Unlike an overseas pension scheme, international SIPPs are domiciled in the UK (for tax purposes) and subject to UK regulatory oversight, whereas most QROPS are not. There also tends to be more variety in the structure of overseas pension schemes.

Not always, though sometimes you do. For example, if you’re thinking of transferring safeguarded pension benefits of £30,000 or more, or you want to move out of guaranteed annuity, you’ll need to speak to a financial advisor first.

You’ll always want to bear in mind that in pension transfer, safeguarded benefits are not accepted by every kind of provider, even if you’ve taken advice.

Note: this applies to transfers from defined benefit pensions only.

If you want to transfer out of a defined benefit scheme, the money you’ve built up us converted into a final sum, which is referred to as the ‘transfer value’ (sometimes referred to as the ‘CETV’ or ‘cash equivalent transfer value’).

At this point, this sum of money must be invested into:

• A SIPP
• Some kind of personal pension
• A similar defined benefit pension scheme

That said, transferring out might not be in your best interest. For example, if you take some or all of the transfer incentive as cash, you may have to pay tax on it.

We’d recommend that you speak to one of the experts that we work with first. They can help you to see if you’re being offered a good deal or not, and help you to explore other pension transfer out options.

Safeguarding the protected benefits that you have built up in a defined benefit pension is really a matter of transferring to an equivalent scheme that allows you to carry over your benefits. Or not transferring at all, if you can’t find a scheme to transfer to that can match your current arrangement.

As we said, transferring isn’t always the best option with DB pensions, especially ones in which you’ve built up a lot of benefits. Speak to an expert if you need some guidance.

Pension risk transfer is the process in which a defined benefit pension provider decides that it doesn’t want to keep paying out to retirees who receive an income from the scheme.

Your pension risk transfer options will depend on the kind of risk transfer scenario you end up in.

We’ve outlined these below.

Incentivised transfer

In this scenario (which is most common), your provider will try to entice you to leave the scheme. For example, by offering you a large lump-sum of money, or other incentives on top of your CETV.

This is sometimes known as an ‘incentivised transfer’ – and may only be offered to members of the scheme who are likely to cost the plan more in the long term, such as younger employees. You can choose to refuse these benefits and stay in the scheme anyway.

Buyout

The alternative is a Section 32, or ‘Buyout’. In these instances, your provider will move your pension scheme over to a new company (typically an insurance firm). It’ll ‘clone’ the benefits that you had before, and may restructure the scheme into a defined contribution model. In cases like this, you don’t have a say.

In other instances, the employer will close its defined benefit scheme to new members at retirement. In this scenario, the employee would be paid a pension on the basis of the scheme rules; this might be a percentage of their final salary based upon years of service.