Transferring your personal pension

Find out how and why you would go about transferring your personal pension, and what risks are involved if you opt to do so.
Paul Davies

Should I transfer my pension?

You might want to think about transferring your pension if:

  • your pension scheme is being closed
  • you want to move to a scheme that is cheaper
  • you want more investment choice from your pension, so want to move into a self-invested personal pension (Sipp)
  • you have a number of pensions and want to consolidate them in one place for greater convenience.

You can transfer your pension to another registered pension scheme or a pension scheme abroad (as long as it's a qualifying recognised scheme).

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Things to consider when transferring

Switching without taking independent, specialist advice could mean you lose out. If you are carrying out the transfer yourself, there are a few things to remember:

Exit penalties: if there are any exit penalties on your existing policy, they could cancel out the benefit of transferring to a new provider. Exit penalties can be in the thousands of pounds, so it's worth checking if they apply.

Loss of guaranteed annuity rates (GARs): your existing pension fund may include valuable benefits such as guaranteed annuity rates, which could mean a higher annuity rate when you retire. Ask your provider if it offers a GAR.

Transfer of risk: if you're thinking of transferring from a final salary scheme to a personal pension, the investment risk switches from your employer to you. The scheme charges might, too.

Ongoing advice: you may need to have ongoing reviews of your investments in order to keep a balanced portfolio. You should consider the cost of ongoing financial advice when transferring.

Tax-free lump sums: you'll lose any right you had to take a tax-free lump sum of more than 25% of your pension value under pre-2006 rules.

How pension transfers work

As a starting point, contact your current pension provider to get confirmation of how much your pension is worth (the ‘transfer value’), the terms and conditions of your scheme, and details of any exit fees. Make sure you check whether there are any benefits you would lose by transferring away.

If you decide to go ahead, you’ll need to contact the provider you want to move to. It will give you an application form to fill in and will manage the transfer on your behalf. 

There are two ways in which you can transfer your pension funds: either your old provider sells your investments and moves your money in cash, or the existing investments are moved across as they are (known as an ‘in-specie’ transfer).

Your existing company must move your pension within six months of the start of the transfer process. The clock won’t start ticking until it has received all the correct documentation.

Sipp transfers

A self-invested personal pension (Sipp) can be an attractive home for existing pension pots currently tied up in other schemes. 

If you have the time and confidence to make your own investment decisions, opting for a Sipp will give you access to a wider choice of investments. Costs also tend to be lower than workplace schemes.

You’ll benefit from having access to a plan that allows you to easily see how much money is in your pension and where it's invested.

Our guide, what is a Sipp?, has more information on the pros and cons of Sipps.

When shouldn't I transfer my pension?

If you're in a company defined-benefit (DB) pension, it will almost certainly not be worth transferring your pension into a personal scheme. As well as a guaranteed income, DB schemes also offer generous benefits to your spouse or partner once you die. Read more about defined benefit and final salary pensions.

It's normally not worth moving if you are a current member of an employer's defined contribution (DC) scheme either, as you may lose your employer's contributions (unless your employer agrees to pay contributions into your new scheme). Moving into another company DC scheme would mean this isn't usually a problem.

Also, if you're nearing retirement, transferring your pension could expose you to market shocks, which you would have less time to recover from if you were further away from retirement.

Questions to ask before moving your pension

Once you’ve weighed up the pros and cons of transferring your pension, it’s worth asking a few final questions before you begin the switch.

Am I in danger of being scammed? - A transfer may sometimes be paused if a red flag is raised by your provider or trustees. A red flag indicates a significant risk of a scam. An example is where the individual has been persuaded to make a transfer following a cold call or other unsolicited contact. Never seek to transfer your fund to a company that you know little about. 

What am I paying in charges?  - Moving your pensions can be a good way to reduce charges  and ultimately boost the value of your pot. Start by checking the charges you’re currently paying: if you aren’t able find out these figures from your annual statement or via an online portal, contact your scheme administrator or pension provider directly

Is my annuity rate guaranteed? - Some DC pensions from the 1980s and 1990s had a guaranteed annuity rate (GAR), which will be higher – sometimes around double – than what’s available on the rest of the annuity market. If you have an older pension, check with your provider to see if it includes a GAR. If so, you’re likely to better off leaving your money where it is.

How much is my pension worth? - Taking money from your pension usually triggers the Money Purchase Annual Allowance (MPAA), which limits the amount you can pay into your pension and still get tax relief to £60,000 a year. But for pots worth less than £10,000, you can withdraw this money in full without it affecting the MPAA. If this is beneficial to you, it may be better to leave these small pots untouched.

Will I have to pay an exit penalty? - Some older pensions still apply exit charges. You will need to weigh up these charges against the potential savings you will make from moving to a lower cost scheme.