Pension Transfer - Is This A Good Idea?

Pension Transfer – Is This A Good Idea?Written on November 2, 2017 by Kirk Rice LLP

Financial Services Questions

The Question:

I have 8 different pension plans and feel I need to simplify this by transferring to my new employer scheme which has recently started. Do I need advice on pension transfer?

Kirk Rice LLP answers:

Whether or not pension transfer is a good idea, is a regular question from clients who may have started the transfer process and been told to seek advice. If you come to me for advice this is what I would do. We will discuss when you want to retire and how much money you’ll need to meet your lifestyle and planned expenditure, as far as you can tell, especially if it’s more than a few years in the future. Then I’ll determine how much investment risk you need to take to reach this target with the pensions you have.

Then I would research each of your pensions to understand charges; the scheme structure and benefits; any guarantees; whether there are exit or transfer fees; the financial strength of providers; whether the investments are good or suitable for you; any special features applied.

There are several occasions when I might advise that you retain a particular pension and I’ll share a few:

Some older plans have very low investment management charges due to special terms set at the outset or offer loyalty bonuses which will be lost on transfer.
There are many pension plans that have an underlying income guarantee at age 65 whatever the value of the fund, and this will be lost on transfer.
Other plans guarantee the annuity rate you can receive at future ages, and these are based on rates when the plan started, which means, the income offered can be 50% higher than available now, again could be attractive to retain.
Other pensions may offer more than 25% cash as a tax free sum when you retire.

Many pensions do not offer the Flexi Access Drawdown facilities and some offer partial flexibility. Whether this is a material fact will depend upon your circumstances. No Occupational Pension has to offer any Flexi Access.

When making a pension transfer to a new plan, you need to regularly review what you are investing in and saving towards. Legislation and tax rules regularly change and an Employer scheme may also be modified to meet the needs of the majority of employees.

Using an adviser means you will receive a recommendation for each pension and establish anything else you should do now for better financial security.

Until 2013 most pension advice was given without you making direct payment for it, i.e. the pension company paid a commission to the adviser based on the size of your contributions. Therefore, the commission on some smaller transactions were less than it cost to provide the advice, but this was subsidised for the adviser by the larger cases. Since January 2013 all advisers must charge a fee for Investment & Pension Advice and can no longer be paid via commission.

An adviser will outline the work to be done and the charge for this. You can decide how to pay the fee and it may be taken from one or more of your Pension Funds or on a pension transfer (not all will facilitate this though) or paid directly by you.

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Any reader interested in discussing whether pension transfer is right for them should telephone Michael Powell on 01344 875000 or email info@kirkrice.co.uk

If you would like to receive Money Matters electronically, simply email info@kirkrice.co.uk stating Money Matters Article in the subject heading and we will add you to our distribution list.

Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.

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