Nowadays it's rare to have all of your pension savings in one place. If you are considering transferring your pensions – either to consolidate them so that they are all in one place or because you are looking for a better deal or a more modern scheme, there are several things that you need to think about very carefully first.
Pension transfers are a complicated subject - so complicated in fact, that to sign off some transfers from one scheme to another you need to hold a specialist qualification. With so many different types of pension schemes and benefits available, it's understandable that you might feel confused.
There are now more rules in place to make sure that you don't make any decisions without the right guidance. In fact, if you have a pension pot that contains a guarantee and is worth more than £30,000, the trustees who are responsible for your pension must insist that you take advice. However, this is where their responsibility ends – it's up to you to make sure that you find the right kind of advice.
How do I know whether my adviser is a pension transfer specialist?
There are several things that you can do to ensure that you are getting the most suitable advice. To transfer a pension containing a guarantee your decision must normally be overseen by someone who holds a specialist pension transfers qualification. This means that they may not necessarily advise you directly, but they will need to approve the decision that one of their colleagues recommends.
Of course, if you would rather speak directly to the pension transfers specialist, you are completely within your rights to request this. And you can ask your adviser if they are a pension transfer specialist. You can search for an adviser at the 'your money' section of The Personal Finance Society (PFS) or Unbiased.co.uk. Then, once you've found a local adviser, you can double-check their credentials on the FCA register.
One thing to bear in mind, is that unfortunately there are some people out there who will pose as pension specialists but don't have the best intentions. You can read more about pension scammers and how to avoid them here.
How much will this kind of advice cost?
This will vary from adviser to adviser so it's difficult to put an approximate cost on pension transfers advice. However, it is may be a reasonably significant cost, as the advisers who hold the relevant qualifications are specialists. The best thing to do is to gather several quotes up front so that you can shop around for the best deal.
Are there any other costs involved in transferring my pension?
This is also very difficult to answer. It varies a lot from case to case depending on how complex the transfer is likely to be. There may be exit penalties set by your existing provider.
What else do I need to consider?
If you currently have a pension scheme that promises any form of guarantee you should think very carefully before giving it up. You should think about the following questions with your adviser:
- Are you, or have you ever been in a final salary pension scheme?
If you are lucky enough to be in, or have ever been in, a final salary or average salary pension scheme, you will be entitled to a certain income for the rest of your life when you retire. This will be based on how long you were in the scheme for and how much you were paid when you were in the scheme, but this is a very valuable benefit to give up.
- Is there any entitlement to more than 25% tax-free lump sum?
If this is the case you may be able to take more than 25% of your total pot as a tax free cash lump sum. This may save you a lot of money in income tax payments so it may be worth holding on to.
- Is there a guaranteed annuity rate on my policy?
These are sometimes referred to as GARs. Often the rates might be better than those that you could get outside of your pension scheme so these are also worth investigating.
- Will the final value of my pension fund be guaranteed?
This can be called a guaranteed maturity value, a guaranteed interest rate or guaranteed growth rates. They all guarantee roughly the same thing – a certain amount of money in your pension fund when you retire – and if you transfer out of your pension scheme you're likely to lose these so it's important to understand what you might be giving up.
- Are you prepared to give up these benefits?
Another question is whether it's worth giving up these benefits. Your adviser will help you to understand the answers to these questions and come to a decision, but before you decide to do anything, make sure you have weighed all of this information up.
How long will it take me to transfer my pensions?
If you decide after all of this deliberation that you still want to transfer your pensions, you should also be aware that you might not be able to do this quickly. The process can vary quite a lot depending on who your pension provider is and how old-fashioned their processes are. Some providers now use software that makes transfers quicker. However, if your provider does everything manually, transfers can take a lot longer (even several months).
The complexity of your case will also affect how long this can take – if you are consolidating several pension schemes into one, it's likely that this will take longer than just moving one scheme to another.
And whatever you decide – make sure that you have taken specialist advice.