Pension transfers and consolidation

What are the benefits of transferring your pension or consolidating multiple pensions?

As a result of having more than one job during your working life, you may have contributed to more than one defined contribution pension plan. As you approach the date when you want to start drawing retirement benefits, it may make sense to combine your various pots.

If you’ve accumulated several workplace pensions over the years from different employers, it can be difficult to track their performance. In today’s world, it’s not uncommon for people to have 6 or 7 different pensions. Leaving long-forgotten plans untouched in expensive, underperforming funds can result in them festering, and the paperwork alone may deter you from taking action. Pension transfers allow you to move your money to another provider.

In general, switching is a wise idea if you want to reduce your charges, particularly if your old plan has high fees. In addition, you should switch if you want to access different investment options.

You may also consider consolidating all your retirement savings in one place, perhaps for similar reasons.

It is possible for older pensions to contain ‘exit penalties’. Changing providers could negate any benefits you may receive if your existing policy has exit penalties.

What is the pension transfer or consolidation process?

1) An experienced Pension Specialist will contact you to discuss your situation in detail and determine whether it might be in your interest to consider transferring your pension.

Then we will need to know the technical details of your current pension in order to compare it to a new one.

2) In order to access your current pension information, we will need you to sign a Letter of Authority (LOA).  It does not give us the right to alter your pension in any way.

3) The information provided will be analyzed once we receive it to determine what benefits you are entitled to under the scheme. You will find out what benefits you will receive at your normal retirement age if you can retire earlier and on what basis, what happens if you die both before and after retirement and if there are any valuable guarantees.

4) Your adviser can help you understand these benefits, but it is much more significant to figure out how they fit with your goals, so you will also discuss:

• The plans you have for retirement
• The current state of your finances
• Identifying your goals
• Whether you are open to transferring your pension
• How you view investment risk

5) Based on the information we have gathered about you and your pensions, we will compare the advantages and disadvantages of transferring your pension.

Included in this will be:

• The retirement benefits you’ll receive
• Is it possible to access the funds earlier?
• Do you have the option of delaying the benefits?
• How your family will be affected if you die

6) You will be informed about each of the options and you will be able to ask any questions you may have about them. Then, we will lay it out for you in plain English in a report. The report will outline all of the costs of moving the pension and what is the most suitable option for you. The most suitable option may be to leave the pension where it is, although it is unusual. We will advise you to do so if we believe it is the best option, and we won’t charge you.

7) Upon receiving this information, the report will be able to make recommendations concerning the most suitable pension providers and options, as well as clarify all costs and charges.

8) Our team will then complete all necessary paperwork for you, which we will send to you for signature. In case you have any questions before you return the forms, we are always available to assist you.

9) Your pension(s) will then be transferred to the new arrangement and we will keep you informed throughout.

10) We will arrange for the funds to be transferred to your accounts if taking some or all of your pension benefits now is of importance to you. This can only be done if you are 55 or older.

11) Upon moving your pensions, we will contact you regularly to ensure that they are performing in accordance with your goals. In the years leading up to retirement, most people become more conservative in their investment approach, so it is important to invest your funds wisely.

Can you transfer a Final Salary Pension?

There are some DB pensions that cannot be transferred. Some public and private sector schemes are ‘funded’ – that is, they are supported by a central fund. You can only transfer from this kind. There are also public-sector plans that are unfunded (such as the NHS pension), which means that the taxpayer pays directly for them. It is not possible to transfer out of this type of pension.

Final salary pension transfer disadvantages

• In exchange for a pension pot that may run out, you trade a guaranteed income
• If the stock market falls, your pension pot will be at risk
• The transfer will probably require you to pay for advice
• From now on, you will be responsible for managing your pension

How do you know if a pension transfer is right for you?

When there is a pressing need for money, having it available now may be very appealing. However, if your pension’s transfer value exceeds £30,000, you must seek financial advice before transferring it. Further, some providers insist that you get advice on smaller transfer values as well, to protect themselves in case you later regret your decision.

When you seek advice, you can weigh up your long-term needs against your short-term plans and may discover benefits of your pension you didn’t know existed.