Transferring your defined contribution pension

You can normally move a defined contribution pension at any time before you start taking money from it. You can check with your provider if there are any restrictions for your specific case.

In many cases, you can transfer even after you’ve started to take money from the pension. But it’s a good idea to check this before you begin taking money if you think you may wish to transfer later.

It’s an important question and it’s important to check whether you’re likely to be better or worse off after transferring.

Whether a transfer is suitable will depend on your individual circumstances and objectives. This information can’t cover everything you’ll need to think about, but it can help you to make a start.

Before moving your pension from one place to another you should always seek to understand what the costs for each are. Not all pensions charge the same. So you will need to check what you might be charged by the pension schemes you are thinking of moving away from and into. Some of the main charges to check for are:

• any initial set-up fees
• annual management charges for the investments you might choose
• service / administration charges, sometimes known as platform fees
• charges for specific transactions such as taking money out of your pension
• trading fees which are charged for buying and selling certain investments.

There’s no right or wrong answer to this question – it depends on why you want to do it.

Some people just prefer having all their pension pots in one place to make it easier to keep track of them.

However, costs are very important. Think carefully about transferring from a low charging scheme to a higher charging one just to keep things simple.

That said, if you are coming up to retirement and your current scheme doesn’t offer the retirement income option you want, bringing all your pension pots into one scheme that has the flexibility you need could be a good idea.

If you have small pension pots worth less than £10,000, it might be better to keep them where they are. This is because you can choose to take the whole pension as a small pot lump sum, which doesn’t affect any future pension contributions.

You can usually do this up to three times with personal pensions and for an unlimited number of workplace/occupational pensions.

If you take more than your tax-free lump sum from your pension, through flexible retirement income or as a taxable lump sum, you may only receive tax relief on contributions to your pension pots up to £10,000 a year. This is instead of the normal £60,000 annual allowance and known as the money purchase annual allowance (MPAA).

So, if you want to be able to take some money out but also continue to save, it might be better to keep smaller pensions where they are as taking the whole pot as a 'small pot lump sum' does not trigger the MPAA.

If you’ve built up a high value in pensions or think you will do so, you might also want to keep smaller pensions where they are. This is because small pots (less than £10,000) can be withdrawn under the 'small pot lump sum' rules without using up your lump sum allowance of £268,275.

Your current pension provider might offer benefits and features you’ll lose if you transfer to a new provider. For example, you might be giving up:

• additional death benefits
• a higher tax-free lump sum
• a guaranteed income rate higher than the open market – called a guaranteed annuity rate option.

You might also need to wait longer to access your pension if your current scheme:

• has a protected normal minimum pension age (NMPA) under age 55
• will still let you access your pension from age 55 after April 2028, when the NMPA increases to age 57.

Always ask your pension provider what benefits you’d lose before deciding to transfer your pension.

You can contact us for free pensions guidance. Our trained specialists can help work out what’s right for you.

If the value of your current benefits is more than £30,000, you might have to get regulated financial advice before you can move your pension to another scheme.

Some schemes might apply charges, including an exit charge, when you transfer out. You should also take into account any set-up charges and ongoing charges on the new pension scheme you plan to transfer to.

If your scheme does contain an early exit charge, usually the charge can’t be more than 1% if you request to transfer away after the age of 55 but before your normal retirement age under scheme.

If you joined a new personal pension (including a workplace personal pension) after 31 March 2017 or a trust-based workplace pension after 1 October 2017, the scheme isn’t allowed to charge you for moving your pension if you’re over the age of 55.

It is important to check with your current provider what charges you might pay before transferring your pension. 

Pensions offer many different investment options. Some offer a small number of investment options, while others offer a large number. And some will offer more specialist investment options, such as the option to invest directly in shares or property.

Think about whether you need more investment choice or if you’d be looking for some support with choosing investments.

Having lots of investment choice can be great, but it can also make the product more expensive and more difficult to make those choices.

If you’re in a workplace or stakeholder pension, it will have to offer one or a number of investments funds your money will be invested in if you’re not comfortable making a choice for yourself.

If you’re looking to set up a new pension, you can check if they offer any ready-made options or support with narrowing down your choices. 

If you have what’s called ‘safeguarded benefits’, in particular if you have a guaranteed annuity rate and the value of these benefits is more than £30,000, you’ll have to get regulated financial advice before you can transfer.

This rule is there for your protection. It helps make sure that giving up these benefits is in your best interests. This is because you will lose them if you move your pension.

An adviser will review the benefits and drawbacks of transferring, based on your overall financial circumstances and plans. They’ll make a recommendation as to what they consider to be in your best interests.

If they do recommend transferring your pension, they’ll consider the options for you to transfer to, including reviewing any existing workplace pensions you have.

They could recommend transferring to an existing pension if this meets your needs or recommend a new product. 

If you get regulated financial advice, the financial adviser takes responsibility for the advice. So if you follow the recommendation they make and this turns out to be  wrong for you, you might be able to complain and get compensation.

Ask yourself if you have enough knowledge and experience of investing to make decisions that will affect how much income you have in retirement, without the need for an adviser. 

The first step is to find out your transfer value, which is the amount you have in your pension pot.

You can get this by asking your scheme administrator or pension provider.

Your scheme administrator or pension provider will then give you:

• a document that sets out your transfer value
• details of any extra benefits you’ve built up under the scheme
• details of any exit charges that might apply
• information that your new scheme will need if you decide to go ahead with the transfer.

You might need to fill in extra forms to start the transfer process.

Be aware that the transfer value usually changes as the value of the investments held in your pension will change regularly.

To start the transfer process, you’ll need to apply to the pension scheme that you want to transfer to. Some providers have an online transfer process, while others might still need you to complete and return an application form.

When you’ve submitted the application to the provider, they’ll usually contact your existing pension provider or scheme administrator to arrange the transfer.

In some cases, your existing provider or scheme administrator might need you to send forms to them too. So it can help to check with them what they might need before you begin the transfer. This will help avoid unnecessary delays.

If you decide to transfer to a new pension scheme, your scheme administrator or pension provider must move your pension across to the new scheme within six months from the start of the transfer process, assuming all the necessary steps have been taken and the documentation is in place.

When you’ve transferred to a new pension scheme, normally you’ll have given up everything under the old scheme. Some schemes will let you transfer only a part of your pension. You’ll need to check with your provider to see if they offer this option.

If you get financial advice, your adviser will usually take care of all this for you but you still might have to fill in some forms. 

Your pension might be one of your most valuable assets. And for many people, it offers financial security throughout retirement and for the rest of their lives.

But, like anything valuable, your pension can become the target for illegal activities, scams or unsuitable and high-risk investments.

Pension scams can take many forms and usually look like a legitimate investment opportunity. But pension scammers are clever and know all the tricks to get you to hand over your savings.

They target anyone, pressuring you into transferring your pension savings, often into a single investment.

If someone contacts you unexpectedly and says they can help you access your pot before the age of 55, it’s likely to be a pension scam.

You could lose all your money and face a tax charge of up to 55% of the amount taken out or transferred, plus further charges from your provider.

The investments might be overseas, where you have no consumer protection. And they might promise you a high guaranteed rate of return (typically 7-8%, or higher).

These are often false investments in luxury products, property, hotel developments, environmental solutions or storage and parking, which often don’t exist or are very high-risk with low returns. 

Remember, when you’ve transferred your pension into a scam, it’s often too late. You might also face a tax charge from HMRC.

The government has now banned cold calling about pensions. It’s important to ignore anybody who approaches you out of the blue about your pension entitlements or pension matters. It’s most likely to be a scam.