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A guide to transferring your pension

Planning for the future will allow you to enjoy the best possible retirement
Planning for the future will allow you to enjoy the best possible retirement - SrdjanPav/Getty

With most people moving jobs every few years, opting for a pension transfer could be beneficial if you have several pension pots you’re struggling to keep track of.

The thought of pension admin may not fill you with joy, but assessing your finances and planning for the future will allow you to maximise the fruits of your working career and enjoy the best possible retirement.

A key consideration is to assess your different pension pots and understand whether you would be better off transferring a pension to a different provider, or even consolidating your pensions into one plan.

However, you’ll also need to weigh up any exit fees you might be charged, and the prospect of losing benefits from your old scheme.

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Here, Telegraph Money explains how you can transfer your pension as well as the considerations you need to take ahead of making any decision. This guide will cover:

Is transferring a pension a good idea?

What should you consider?

Pros and cons of transferring a pension

How to move your pension

Do you need financial advice to do this?

FAQs

Is transferring a pension a good idea?

You’ll need to weigh up a lot of variables, including your own personal circumstances, when deciding whether transferring your pension is right for you.

One issue is whether or not you have lots of pension pots. The average British worker has 11 jobs in their lifetime – that’s potentially 11 different pension pots with different providers who could all have different management fees, and you could also end up being sent annual statements at different points in the year.

There’s also the chance that you’ll lose touch with certain pots, and if you’re never reunited with your money it could have a detrimental effect on your retirement.

In 2023, there were 1.6 million lost or forgotten pension pots, according to The Association of British Insurers, with an average value of £13,000.

Transferring your pensions and consolidating them in one place can make it much easier to keep track of all your retirement savings, monitor investment performance and only pay one set of management fees.

This clarity can give you foresight to help plan your retirement and be more confident knowing how much you have at your disposal.

However, if you only have a couple of pension pots that you’re not in any danger of losing, or any with particularly good benefits, then it might make sense to leave your money where it is.

What should you consider?

The main issue to weigh up is whether you’re likely to be financially better off from transferring your pension to another provider.

Type of pension

You’ll either have a defined contribution (DC) pension – the most common type, where your spending power is determined by how much is paid in, and its investment performance – or a defined benefit (DB) pension, where your retirement income is guaranteed depending on your final salary or career average. This usually increases each year to counter inflation.

Transferring a DC pension to an alternative DC pension is more common, and relatively simple. But if you’re looking to move a DB pension to a DC scheme, there’s a lot more to think about.

Firstly, you’ll usually need to give up the income for life deal in exchange for a cash value. In most cases, this is likely to leave you worse off overall, but some people opt for the cash value as it’s a more immediate route to the money.

Some people also choose to transfer after some employers with these schemes have gone bust, and members have received less than they were expecting after being taken over by the Pension Protection Fund (PPF).

If you go ahead, you’ll need to choose where this money should be invested. And if you change your mind, you’re stuck – you can’t return to a DB scheme at a later date once you’ve transferred out.

Not all DB pensions can be transferred to DC schemes; if you have an “unfunded” public sector pension (such as those in the Teachers’ Pension Scheme), your transfer options are usually limited to either a private sector DB scheme, or a funded public sector pension scheme.

It’s not possible to move a DC to a DB pension scheme.

Charges

The issue of charges is something you’ll need to consider whether you transfer your pension or stay put.

In order to maintain your pension, make trades and balance your portfolio, pension providers will usually charge fees. If you have a pension pot from an old employer that you’re no longer paying into, it could be that these fees start to gradually erode the account’s value. Therefore, it can make sense to add smaller pots together and reduce the fees you’re paying – transferring could also offer the chance to move to a provider that charges less, so you can keep more of your money.

Set against this is the issue of exit fees.

These may be charged when you leave a provider, and used to be as high as 10pc of the value of the pension. However, since 2017 the Financial Conduct Authority (FCA) has enforced a cap of 1pc on exit fees if you are over the age of 55.

That being said, depending on how much you could gain by transferring, it might not always make financial sense to switch because of what you’ll lose to exit penalties.

Pros and cons of transferring a pension

As we’ve mentioned, the main advantages to transferring your pension pots are potentially cutting down on fees, and improving your ability to plan for retirement by having all of your money in just one – or a handful – of accounts. It’s easier to see how much you have saved, how much more you might need before you retire, and how your investments are performing.

Another potential for the pros list is the fact that you might be switching to a more modern account – some older accounts, for instance, don’t include the option to take a 25pc tax-free lump sum from the age of 55 (rising to 57 in 2028). If you’d like this extra flexibility, it makes sense to transfer elsewhere.

The cons? Losing out on the rarer perks your pension provider might offer. Some company schemes offer loyalty bonuses for staying with the provider, and some schemes stipulate employers are required to increase the value of your pension fund regardless of investment performance – these won’t be available everywhere.

The crux of the decision you are making is whether the benefits of your new pension scheme outweigh your current arrangements. You need to consider how well your existing pension is performing, the benefits which come with the scheme, how much you are paying in fees and what the exit cost would be.

How to move your pension

The first step is to make sure you know where your pension pots are now. It’s possible to find lost pensions using your National Insurance number, and the Government’s own Pension Tracing Service is free to use, and may be able to help you find them.

Once you know which pension pots you want to transfer, you should contact your provider and ask what the transfer value of your pension is.

This is the total value of your pension minus any exit fees you would be liable to pay.

To go ahead with the transfer, you will be asked to complete an application form with the new provider who will then contact your old provider on your behalf to complete the switch.

Some providers will simplify the process even further and ask only for the name of the pension provider, your policy number and an estimate of how much is in that pension pot. They then take this information and contact your previous provider to carry out the transfer.

Do you need financial advice to do this?

In most instances there is no legal requirement to take financial advice. However, if you have a DB pension worth more than £30,000, it is a legal requirement to seek regulated financial advice before being allowed to transfer it.

Our guide can offer tips on how to find a good financial adviser, and to check whether an adviser is regulated, you can search for an individual or firm on the FCA Register.

FAQs

Can I transfer my pension to my bank account?

You’re usually only allowed to make withdrawals from your pension when you’re aged 55 or over (soon to be 57 or over), at which point you can access your savings and move them to your bank account to be spent.

As for taking the whole pension sum, this is possible but may not be a good idea – not only are there tax implications to taking a particularly big pension lump sum, but you’ll also lose out on the investment growth your money could have earned if it remained in the pension.

How long does a pension transfer take?

The whole process can take up to six weeks, but it could be completed in as little as two weeks, depending on how proactive your pension provider is. 

What is the pension transfer value?

If you transfer a DB pension, your provider will give you your pension’s cash equivalent transfer value (CETV) – this is the sum of cash you’d be given if you chose to give up the lifetime payments and transfer to a DC pension.

You won’t get this figure as a lump sum, instead it will be used to purchase a DC pension which could, in theory, generate the same level of income if you kept the DB pension.

The CETV is based on several factors, including:

  • how old you are

  • your life expectancy

  • your living costs

  • whether your provider is encouraging you to transfer out