If you like to think of your retirement fund as a nice honeypot for your future, then organising your pension pots every now and then could give you a smoother finish to your working life. ‘Pension transfers’ do exactly what they say on the tin: move your pension fund from one pension pot to another.
Pension transfers can be a handy tool to combine all your finances into easier-to-manage pots before you reach retirement age. Dip into pension transfers with this article; we’ll be covering topics like:
- What you can do with your multiple pension pots if you’ve changed jobs.
- What the benefits of transferring them into one place could be.
- Any considerations before you make any decisions.
You can skip straight to some of those here:
- What are the benefits of transferring a pension?
- What to consider when transferring a pension
- So, should I transfer my pension?
Transferring your past pension pots could help streamline your finances and make managing your retirement money easier for the future. It should be noted though, that your State Pension entitlement can’t be transferred — this article is focused on UK ‘defined contribution’ workplace and personal pension pots.
What are the benefits of transferring a pension?
From putting all your pensions together into one easier-to-manage place, or wanting more control over how your money is invested, there are plenty of benefits to pension transfers.
But what works well for one person’s financial goals could be different to the next. So, we’ll try to cover all bases, and you can decide which ones pique your interest — and could give you a positive financial impact.
Pension consolidation: combining all your old pensions into one pot
What’s easier to manage than everything being in one place? Although there may be some exit charges from your current provider to be aware of (or unless you have especially good benefits to your existing pension, meaning it would probably be better to not transfer that one), combining past pensions could be something worth exploring.
Create more compounding
Although there are no solid guarantees that having your pensions combined would lead to the best possible returns (there’s no predicting the stock market, unfortunately) — it could lead to further growth through the power of compounding.
When the investments held in your pensions grow, any dividends or interest you gain would also contribute to the value of your pension. And when it comes to ‘compounding’, a little goes a long way, over time.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
Easier to manage
All in all, you could consider combining your pension pots to make things simpler for yourself; easier to manage and less admin and paperwork.
If ease-of-use is high on your list of pension priorities, and you’ve weighed up the considerations, then having your funds in one place could be a benefit for you.
Lower pension management fees
Another reason to consider transferring a pension from one provider to another, is more competitive management fees.
Most workplace and personal pensions charge a small fee to manage your investments and use their service. When you’re starting out and the value of your pension is relatively low, these fees may seem nominal. But as your pension grows in value, you may want to transfer to a cheaper provider to reduce these pension charges; even a fraction of a percentage could impact your retirement fund.
For example, if you have £50,000 invested in your pension and let it sit for 20 years with an average annual return of 7%:
An annual fee of 1%
= £33,125 charged in fees, leaving you with £160,357 for your pension fund.
Whereas an annual fee of 0.6%
= £20,580 in fees, leaving you with £172,902 for your retirement.
These figures are only an example to show the difference in fees; the 7% projected return mentioned is not guaranteed. Please remember that with investing, your capital is at risk, and you could get back less than what you put in.
It goes to show how researching into ongoing fees and other charges matter to your pension pot. To help your research, Wealthify charges a transparent annual management fee of 0.6%, which drops to just 0.3% for any portion that’s £100,000 and above. There are no charges to transfer into Wealthify, but find out if the scheme you’re currently with charges any exit fees. Find out more about our fees here.
Better investment options
Workplace pension schemes don’t typically allow you to have much input into how your money is being invested. This means you have little control over your retirement fund — whether that’s in terms of potential growth or focusing on investing in certain ethical industries.
If you are thinking of transferring a pension to a SIPP (Self-Invested Personal Pension), for example, then this could give you the opportunity to have more control over what type of assets your money is being invested in. Particularly, if you’d like to only opt for ethical investing, or if you want to invest in a style that’s more suited to your comfort level (like Wealthify’s SIPP offers).
More flexibility over withdrawals
Unlike waiting for your State Pension entitlement to begin (the date of which varies from person to person; check your State Pension age here), workplace and personal pensions typically let you start to withdraw from them at 55 (rising to 57 in 2028). With these personal pots and ‘defined contribution’ workplace schemes, the first 25% you withdraw is usually tax-free, with the remaining 75% being taxable.
You can usually choose to take lump sums, a regular income (drawdown), or explore selling off part of your pension through an annuity purchase. For anyone with a defined benefit pension – often used for people working in the public sector – these typically offer you a set income for the remainder of your life that keeps in line with inflation.
Some providers may charge you to start withdrawing from your pension though, and this is something to figure out before you reach retirement age. Especially as transferring your pension can become trickier once the money in the honeypot becomes ‘crystallised’ (when you've started taking money out of your pension) as many providers won’t accept a transfer from that point.
What to consider when transferring a pension
While there are many benefits of transferring pensions, there are also things to think about before you start moving your money around.
There’s risk when it comes to investing
Although the long-term goal for investing is to help your money grow (in this case, your pension pot), you should bear in mind that markets have highs and lows — and it’s possible that you could receive less money back than what you put in.
Check if there are exit fees
As mentioned earlier, check with your current provider as to whether there are any fees charged for transferring out. Check over your scheme’s paperwork or get in touch with their customer support team if it isn’t obvious.
What other charges, investment fees and management fees are involved?
While you’re looking at whether there’s a ‘transfer out’ fee, you may as well make note of any other fees or charges that may be at play — for both your current and new provider.
Some pensions can’t be transferred
- Defined contribution pensions that have a guaranteed annuity rate, safeguarded benefits, or other special guarantees.
- Defined benefit pensions; normally offering you a fixed income for the rest of your life.
- Pensions you’ve already taken money from (crystallised).
- If you have a workplace pension, you'll need to talk to your employer before transferring, as a transfer may mean they stop paying into it.
Pensions transfers can take a while
This will vary from provider to provider though. The main reason being that your provider will need time to sell your investments and send those as cash to your new account. This means that there’ll be a period of time where your investments are on hold and ‘out of the market’.
Is your pension eligible for a transfer?
You can split your research into two steps:
- Will your current provider allow you to transfer out?
- Would your new provider accept the type of pension(s) you have?
Here’s a more detailed list of things to consider:
- Many providers will not let you transfer ‘defined benefit’ pensions, or any that have valuable features such as loyalty bonuses, as you may lose out on these generous benefits by transferring. In your interest, Wealthify can't accept transfers of pensions with any benefits that are safeguarded, would offer you a guaranteed income, or those where you can get more than your 25% tax-free cash.
- It’s unlikely you’ll be able to transfer your pension if you’ve started withdrawing your money from it. Wealthify, for example, cannot accept transfers from pensions you’re already taking an income from.
- You must be comfortable with the time period when your investments are being sold off, ready to transfer to your new provider in cash.
- There may be age limits to when you can open an account, so check with the new provider you’re thinking of transferring to.
- If you’re consolidating your pensions together, remember that combining pensions doesn’t guarantee more money during your retirement. The investing style, market performance, and charges you incur all play a part in your retirement fund’s growth, too.
And finally, always read the fine print
Weigh up the pros and cons, making a note of any clauses or charges that may impact your transferred pension; seek independent financial advice if it will help you better decide.
So, should I transfer my pension?
As you complete your research and weigh up the benefits versus considerations, you’ll be able to come to a decision about whether a pension transfer is right for you. If you do decide to go ahead, Wealthify can help.
With a Wealthify’s SIPP, we offer a range of benefits that could help you grow your retirement fund.
We invest your money in a style that suits you: take our suitability quiz and based on your results our expert Investment Team will be able to build your Pension Plan based on with five different investment styles available, from Cautious to Adventurous. (With investing, your capital is at risk.)
No investing experience needed: our experts manage your pensions for you, making sure you're on track to reach your retirement goals.
Simple and low fees: Wealthify has a straightforward annual management fee for pensions (0.6% per year up to £100,000, dropping to just 0.3% for any portion above that) and we don't charge you to deposit money, transfer or close your Investment Plan.
Easy pension transfers: just tell us a few basic details about the pension(s) you'd like to transfer to us, then we'll do the rest for you.
Ethical investing options available: if you want to keep your money in line with your values, you can also choose an Ethical Investment Plan — ensuring you are only funding organisations committed to having a positive impact on the planet.
Wealthify SIPPs get a government top-up: Once transferred, Wealthify automatically adds the 25% top-up to all new contributions you personally make to your pension — simply opt-in for this as you’re getting set up if you want this additional tax relief to be added.
So, should you transfer your pension? Well, only you can answer that. Although, as you’re already on the path to researching this topic (and with the option of getting extra clarity from the help of an independent financial advisor on the table), you should have all the tools to be able to feel confident about whether the decision is right for you and will lead you to the retirement pot you deserve.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
Wealthify does not provide financial advice. Please seek financial advice if you are unsure about investing.
Your tax treatment will depend on your individual circumstances, and it may be subject to change in the future.
References:
