Defined Contribution Pension Transfers

Transferring Defined Contribution Pensions

A defined contribution pension transfer involves moving your pension from one place to another. This might be as simple as switching pension funds with the same provider, perhaps to achieve a better investment risk balance, or moving your pension pot to an entirely new provider.

It’s become incredibly common to have multiple pension pots, especially in the age of auto-enrolment where everyone who qualifies is automatically enrolled into a workplace pension scheme. While it’s good to have some diversity in your pension portfolio, there can be downsides to having multiple pension pots, such as:

• Increased costs
  It may reduce the fees and charges you pay across multiple pension arrangements
• Harder to keep track of your investments and their performance
  With fewer pots it’s generally easier to monitor your pension and its performance
• Harder to estimate your retirement income and plan for any pension shortfall
  With fewer pension pots (and pension paperwork!) to worry about, it’s easier to get an idea of your retirement income from fewer pots, leaving you better prepared in case there’ll be less to live off than you think
• Harder to tax plan
  Having your pensions in fewer places not only gives you better oversight of the funds, but can also make it easier to see whether you’re going to hit any pension limits, such as the lifetime allowance.

Should I Transfer My Pension?

There are a number of reasons you might look to transfer your pension, such as:

• Your current provider doesn’t offer the pension option you want
• You want to combine pots to simplify your pensions
• You want to pay less in fees.

What to Consider Before Transferring

To transfer your defined contribution pensions, you’ll need to contact both your current pension provider(s) and the provider you’re considering transferring to.

The first thing to check is that your existing pension provider(s) will allow you to transfer out of the scheme. Then you’ll need to see if the scheme you’re looking to transfer to will accept transfers in.

Be aware that transferring your pension could mean you’re bound to making payments into the new scheme. You might also have to pay exit fees and charges if you’re leaving the old pension, plus potentially a fee to make the transfer.

It’s also worth considering that if you transfer, you might:

• Lose any right you had to take your pension at a certain age (a fixed or guaranteed retirement date)
• Lose any fixed or enhanced protection you have when you transfer
• Lose any right you had to take a tax free lump sum of more than 25% of your pension pot (an enhanced pension commencement lump sum).

Another loss to consider is any guaranteed annuity rate that you might be entitled to. This is a promise from a provider to pay a higher annuity rate than might be available on the open market. Make sure you understand the value of any such contract options before deciding to transfer.

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