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You might decide to transfer your pensions for more control, simpler retirement planning or perhaps just better value. It might not always make financial sense if you have a pension with certain benefits or guarantees, so it’s important to investigate this before you transfer.
Operation of pension schemes through risk management applications.
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Reasons to transfer a pension
As circumstances change you may want to transfer your pension. Some common reasons include:
- You’ve collected a number of pensions from different jobs and want to consolidate them in one place
- You’ve come across a scheme that offers better value
- Your current pension scheme is being closed
There’s a number of options out there that can offer you a solution – but it’s important to examine a few things first before you transfer.
Things to check before you transfer
Do you have a defined benefit pension or a defined contribution pension?
Pensions come in two different forms in the UK. Depending on where you’ve worked you’ll either have a defined contribution pension or a defined benefit pension. Most modern pensions are defined contribution pensions, but you may have a defined benefit pension if you’ve worked for a big corporation or in the public sector.
Defined contribution pensions
Defined contribution pensions are basically tax-efficient savings accounts for retirement. The amount you have in your pot depends on how much you’ve paid into the pension, how the investments have performed, and what fees you’ve paid to the pension provider. Transferring these pensions is usually relatively straightforward.
Defined benefit pensions
Defined benefit pensions are different. They tend to come with a final salary guarantee, which is essentially an agreement to pay you a retirement income based on your earnings and your length of membership in the scheme. These schemes can prove lucrative if you’ve been in them a long time, so it might not always make sense to transfer out. In fact, if your defined benefit pension pot is worth £30,000 or more you’ll need to take independent financial advice before you transfer. We’ll also always send you the full paperwork to review before you commit to a transfer.
Some older pension plans have high exit charges, sometimes more than 10% of your total pension savings. The good news is that the government is set to crack down on these excessive fees though, so you might want to hold off transferring until these new caps come in. If you transfer your savings to us, we’ll let you know if we find that any of your old pensions have exit fees of over £10.
- What is the reputation of your new provider? How do they fare when it comes to customer service?
- How involved do you want to be in making investment decisions? With some plans you can choose your own investment funds, whilst others are a pre-picked mix of shares, bonds and cash.
- How much are the fees of your old pension compared to the one you’re transferring to?
- How easy is it to contribute to your new pension? What are the policies around contributions?
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