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Can I Transfer my Pension To A Better Performing Scheme?

Among the many questions pension experts receive is, “can I transfer my pension to a better performing scheme?” The simple answer is 'yes'. However, having the ability to transfer your pension into a different scheme does not always mean it is a good idea. We will look at both the reasons for transferring as well as reasons to stay put in your current plan. We will also explain how a pension transfer is initiated by a member.

As a starting point, keep in mind that pension transfer is not the same thing as purchasing an annuity or requesting a lump sum payout. These other two options result in the termination of your pension plan membership by converting your funds into another qualifying vehicle. Transferring your pension literally involves removing the money from one scheme and putting it into another.

It turns out that taking advantage of better performance is the primary reason people transfer their pensions. Today's knowledgeable investors are more apt to know when their current schemes are not performing up to standard; they are also more willing to look around for new opportunities that will do better.

Other Reasons for Transferring

Perhaps your reasons for transferring have nothing to do with better performance. You might want to know, “can I transfer my pension if I leave my current job?”. Yes, you can. In fact, transfers related to changing jobs are almost as common as those related to seeking better performance. There are just some workers that feel better about taking their pensions with them rather than leaving them behind with a former employer.

We know you're curious, so here are some additional reasons for transferring a pension:

  • Your current pension scheme is either closing or being wound up
  • You have multiple smaller pensions you want to combine into a single pot
  • Your current pension scheme is too restrictive in the kinds of investments it allows
  • You plan to retire overseas and want to take your money with you.

All of the reasons for transferring listed above are certainly valid. Our only caution is that consumers receive appropriate advice before initiating the transfer so that they know, as much as is humanly possible, that the transfer in question is in their best interests.

When You Should Not Transfer

While there are plenty of reasons to consider transferring your pension, there are three separate circumstances that suggest a transfer is not wise. The first is participation in a defined benefit scheme.

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Defined benefit pensions, by their nature, are much more lucrative than their defined contribution counterparts. They tend to offer greater retirement benefits, guarantees of those benefits, and certain additional benefits that may be contributed by the pension operator. As such, defined benefit schemes are considered to be the best you can get.

The thing to remember about most of these schemes is that they are not transferable from one job to another. Furthermore, workers do not have the same flexible access to their money as defined contribution scheme members. In order to gain that flexibility, they must transfer their funds into a defined contribution scheme. This is unwise due to the risk of incurring substantial financial losses.

The other two circumstances in which transferring a pension is not wise are as follows:

  • Overseas Transfers – Successfully transferring your pension overseas requires you to use a qualifying recognised overseas pensions scheme (QROPS) found on the government's official list of acceptable schemes. The problem is that pensions can be dropped from this list without warning. If you are not absolutely sure that your chosen QROPS has the necessary staying power as a recognised scheme, you might be better off not transferring.
  • Charges and Fees – Charges and fees associated with a pension transfer can be stifling, especially with older pensions established prior to the announcement of pension reform. Charges and fees that are too high could reduce your pension transfer value low enough that a transfer just doesn't make sense.

If there is any question about whether or not you should transfer a pension, the obvious place to go for answers is a certified financial advisor with pension experience. The government also offers plenty of free guidance on numerous websites. Take advantage of this guidance to maximise your chances of reaching a wise conclusion.

How the Transfer Works

Transferring from one scheme into another is not hard in principle. To do it right, though, there is a particular process to be followed:

  • Obtain a pension transfer value statement from your provider
  • Consult with a financial advisor experienced in pensions
  • Research the free guidance offered by the government
  • Make arrangements with your new pension provider to receive your money
  • Submit the transfer application to your current provider.

Should you get past step three, the rest of the process happens relatively quickly. The amount of time between the date you submit your transfer application to the day the transaction is actually completed will rarely exceed 30 days. In most cases, 10 to 14 business days is the norm.

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Because the transfer process is so quick and final, we encourage you to take your time on the first three steps. Even if it takes you several months to get all the advice you need to feel comfortable, it is better to take that time than to make a rash decision that could end up haunting you.

Should you ultimately decide a transfer is right for you, pay attention to the following risks of transferring:

  • Exit Fees – All transfers will have exit fees involved. That's reasonable. But watch out for penalties in addition to those fees. If your pension scheme assesses thousands of pounds in penalties, a transfer may not be worth it.
  • Guaranteed Annuity Rates – Your current pension scheme may offer guaranteed annuity rates in the hopes that you will purchase an annuity upon retirement. Any such guarantees will be lost in the event of a transfer.
  • Pension Bonuses – Some pension operators offer bonuses as an incentive to encourage members not to transfer out. As with guaranteed annuity rates, such bonuses will be lost should you decide to leave.
  • Transfer Value – The actual transfer value of your pension will likely be less than its cash value. You need to know how big the difference is and why.
  • Change of Mind – Investors usually have 30 days to change their mind about a pension transfer. Take advantage of that opportunity if you have a change of heart within the allotted time frame.

A financial advisor experienced in pensions will be able to walk you through all of these risks. Please help yourself by paying attention to the advice you receive. A financial advisor cannot make a decision for you, nor can he or she force you into any specific alternative, but the advice received is invaluable nonetheless.

Can I transfer my pension to a better performing scheme? Absolutely. Just make sure that the new scheme really does perform better and has done so over a long enough period to demonstrate its worthiness. With the right kind of advice and your own effective research, it is possible to move your funds elsewhere for a much better financial return.

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