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UK Pension Transfers - Moving To Best Pension Schemes

UK Pension Transfers - Moving To Best Pension Schemes
Published:  22 Feb at 6 PM
A pension transfer is the process of transferring - ie switching or changing - the value of your contributions that are in one pension scheme to another pension scheme. For example if you have £50,000 sitting in one pension scheme and you want to transfer it to another pension scheme, however doing this ends your membership of the original pension scheme.

Understanding if you will benefit from a pension transfer can be complicated and you should always take advice from a qualified IFA before deciding to proceed with a pension transfer. Everyone's situation is different, so you won't necessarily benefit from a pension transfer just because other people you know are transferring their pensions to new schemes.

However, there are situations where it does make financial sense to transfer your pension to a new or different scheme. For example, your company occupational pension scheme may be in the process of being wound up or perhaps if you have loads of small pensions, perhaps from a variety of employers, periods of self employment and various Additional Voluntary Contributions (top-up) plans and you would like to amalgamate them all - perhaps in a SIPP (Self Invested Personal Pension). Another common reason is that you may like to add your existing personal pension to an occupational pension scheme to benefit from lower fees/employer contributions although only a minority of employers allow this.

Whatever your situation, there is one golden rule of pension transfers that you must not ignore, take professional advice from an Independent Financial Adviser (IFA). IFAs are regulated by the Financial Services Authority (the UK government regulator) and are required to give you impartial advice based on the facts and on your individual circumstances. They will be able to understand your current and new pension schemes and will work out whether you will actually benefit from transferring your pension or whether you may end up losing out.

An IFA will also be able to suggest a suitable pension product for you to transfer your old pension into, if you need this (although there won't be any obligation). Some IFAs specialise in pensions transfer work – so always ask if your adviser is qualified to do this. Pension transfer work is complex so you don't want an IFA who spends 99 per cent of the time on mortgages.

There are strict legal rules about pension transfers. You don't need to understand them all, but you should know at least the basics if you are considering transferring your pension. When you retire, the total value of your contributions is calculated. This money is then used to purchase an annuity, which gives you a guaranteed income for the rest of your life. Money purchase pensions are also known as Defined Contribution pensions - because your contributions are fixed but the benefit (pension) you will get when you retire is not.