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23 Jun Things to check before you transfer

Posted at 12:13h in Uncategorised by

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 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 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.

Is there an exit charge?

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.

Other things to look for

Elsewhere, it’s also wise to consider the following:

  • 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?