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Experts Guide to Pension Transfers

In simple terms, a pension transfer is the process of taking pension funds out of an existing scheme to place them in a new scheme. Transfers are subject to strict regulations in order to reduce the risk of savers losing everything they have through unwise decisions. With the right pension transfer advice, you should be able to complete one or more transactions safely.

Reasons to Transfer Pension

As it currently stands, the law dictates that nearly every UK worker will be participating in a company pension plan by 2018 unless specifically choosing to opt out. Therefore, even if you do not have a pension right now, you are likely to have one in the future. As long as you continue contributing to that scheme, you are accruing benefits that belong to you forever.

So why would you consider transferring a pension? There are a number of viable reasons offered by the Government:

  • Changing Employers – Changing employers mean you are leaving a pension pot behind – a pot that will no longer be growing by way of contributions from you and your employer. Transferring that pot to a new company pension will allow it to continue to grow.
  • Closing Pensions – From time to time, a workplace pension programme will be closed in favour of a new scheme. Workers who would benefit financially from the new scheme might consider transferring into it.
  • Under Performing Pension – Your current pension scheme may not be performing up to your expectations. If it is possible to get a better return by putting your money into a private pension or a self-invested personal pension (SIPP), transferring a pension fund might be a wise idea.
  • Multiple Pots – Some pension transfers are the result of workers wanting to combine multiple small pots into a single, larger pot with a greater earning potential. Doing so is not always a wise idea because of something known as trivial commutation. A pension transfer adviser can explain how trivial commutation works and whether it is a better option or not.
  • Retiring Overseas – Pensions belonging to expatriates can be left in the UK or transferred to Qualifying Recognised Overseas Pension Schemes (QROPS) approved by the Government. A QROPS transfer is often beneficial for tax purposes because it reduces the risk of double taxation.
  • Investment Control – Some company pensions do not offer many investment options to workers. In such cases, workers may elect to transfer their pensions into a SIPP. Doing so gives the individual absolute control over how their money is invested.

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Whether or not a pension transfer is a wise choice in your case depends on a myriad of circumstances and future goals. Therefore, while it is rare to suffer a huge financial loss because of a legitimate transfer, losses are still possible. You need to consider all of the implications of transferring before deciding to do so.

Transferring Lost Pensions

The new pension rules to be fully implemented from 2015 are causing some consumers to think twice about the potential of lost pensions they may have left behind somewhere. Finding these pensions can significantly improve your financial future should you decide to transfer them to your current pension scheme for better a return. The difficulty is finding these pensions.

Workers who suspect they may have lost pensions can do two things. The first option is the easiest option: use the Government's free pension tracing service. Simply fill out a form online, submit it to the service, and let them search for any pensions existing in your name. The information returned can be used to contact the individual companies or pension administrators in question. The administrators of lost pots can help you with the transfers should you decide to do so. The second option is to just directly contact any employers from your past.

Things to Be Aware Of

Pension transfers are not always a wise idea, according to the Money Advice Service. We would agree. Depending on the rules governing your current pension scheme, transferring could end up costing you in the long run. The following needs to be considered prior to any pension transfer:

  • Pension Transfer Cost – Every pension administrator charges participants for the services they provide. The greater the services, the higher the associated costs. A new pension that costs more money is only worth the additional amount if the value of the additional services is commensurate.
  • Lost Benefits – While it is true that most of the benefits you accrue in a pension scheme are yours forever, that is not true of all benefits. For example, your current scheme may offer you what is known as a Guaranteed Annuity Rate (GAR). Because this benefit is offered by the insurance company administering your pension, it is a benefit that could be lost upon transfer.
  • Penalties and Charges – Pension administrators usually charge certain fees for transferring pensions; some also charge opt-out penalties. While these charges and penalties can be minimal, they can also be quite expensive – to the tune of several thousand pounds in some cases. You should always ask about charges and penalties before making the transfer decision.

Part of making a pension transfer decision is knowing the value of your current pot. You can get your pension value simply by contacting your pension administrator and asking for it. They will issue you an official document stating the value of your pot on the date requested. Keep in mind the value will change throughout the coming months and years.

How to Transfer a Pension

Transferring a pension is straightforward in terms of process. Start by asking for a pension transfer guide from your administrator, assuming they have one. The guide will probably answer most of your questions. When you are ready to go, simply inform your administrator of your plans to transfer. They will send you the paperwork that needs to be filled out and returned to them. The transfer will then be completed in anywhere from 30 to 240 days. Transferring to overseas schemes typically takes longer.

Transferring a state pension as an expatriate is not difficult either. In fact, you are not really transferring anything by moving abroad; you are simply informing the Government of your new living arrangements in a foreign country. The only thing to be concerned about here is the country you plan to move to.

The Government recognises certain qualifying and non-qualifying countries for state pension purposes. In a qualifying country, you would continue to receive state pension payments that would increase along with inflation. In a non-qualifying country, monthly payments are frozen at their current level at the time of the move. This is what is known as a frozen pension. Your payments will remain at that level until you return to the UK or move to a qualifying country.

Beware of Transfer Scams

The law allows you to transfer a pension at any time, just as long as the new pension complies with legal requirements. There is no age or time limit. With that in mind, there are scammers who attempt to take advantage of consumers by offering pension transfer schemes that are illegitimate. For example, a scammer might offer to transfer your current pension pot into an overseas scheme while also offering you an upfront lump sum payment in cash.

Be very careful with any company offering to transfer your pension unsolicited. Be especially careful when these kinds of companies start talking about overseas investments that will earn you exceptional returns. An offer may be legitimate, but it will most likely be a scam. Stick to pension transfers arranged through legitimate, well-known companies with a proven track record.

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Speak with a Financial Advisor

Understanding the complexities of the UK pension system is not easy. Thankfully, there are experts who make it their business to know everything about pension transfers, the costs associated with them, and all of the options involved. Now that you have read our pension transfer guide, we want to invite you to take advantage of the advice we offer.

Our team of FCA regulated pension experts can provide you with all of the information you need to know in order to make a wise decision. The initial consultation provides you with free, sound pension transfer advice. Furthermore, you will be advised of any charges before committing to additional services and products we offer.

Our goal is to ensure that every client considering a pension transfer does so only after receiving all of the available information and appropriate advice. We can provide both when you contact us.

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