Pension Transfers
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Pension Transfers
Gary O’Neill from Austin Chapel talks us through a pension transfer, answering some frequently asked questions.
Can I transfer my pension to another provider? Why would I need to transfer my pension?
I’m going to talk today about defined contribution pension transfers – which are investment linked pensions. And yes, you can transfer your pension from one provider to another. Pensions now can be freely transferred between providers.
There are some cases where that might not necessarily always be the best decision, but certainly they can be transferred.
The main reasons that people consider transferring their pensions are first of all to access their pension fund or their tax free lump sum or they may want to take advantage of lower charges from their new pension provider.
Potentially they might get better investment performance, or have had more flexibility in terms of how their pension works. They could possibly have a wider choice of funds to invest in through the actual pension vehicle itself.
How does a pension transfer work and how long does it take?
A pension transfer is part of a regulated process, which is really important. So whenever someone is considering transferring their pension, they should also always seek independent advice from a regulated financial adviser.
In terms of the process, first of all the financial adviser would complete a fact find or a financial review form to find out as much as they can about the client and their circumstances. They then assess the client’s suitability for what they’re considering doing – in this case transferring a pension.
We would consider the client’s attitude to investment risk and analyse all the information to provide a recommendation to the client. Sometimes that recommendation may well be not to transfer. But if a transfer is a good idea, the client agrees to proceed and the transfer application is then made, both to the receiving scheme and the current one.
Once certain regulatory information has been provided, the pension is then transferred to the new provider. After that, the pension fund is then managed on an ongoing basis by your financial adviser.
Do I need a financial adviser to transfer my pension?
You do, yes. It’s absolutely vital to get independent financial advice, to ensure you’re actually making the right decisions based on your circumstances. Make sure your adviser is regulated as an individual or through their company.
The main reason for that is in future, if there was a problem or you had a need to complain, there is actually a safety network for you, protecting you if that company or adviser has given you the wrong advice. It doesn’t go wrong very often, but it could.
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Are pensions transferred automatically?
No, there’s a whole process to go through in order to transfer your pension. That’s a good thing because it means there are plenty of checks and balances to make sure you are doing the right things for your circumstances.
If that weren’t in place and you could transfer your pension on your own automatically, people may transfer their pension where it’s not necessarily the right thing for them. So it’s a good thing that you need to receive advice.
Can I transfer my pension to my bank account?
No, you can’t. A pension is essentially a tax efficient wrapper – we have a number of these in the financial services world. You can only transfer a pension to another pension.
However, once you’ve gone through that process and transferred your pension, you can invest in things like bank deposit accounts as part of your investment choice. But you can’t actually invest the money directly into a bank account.
How much will it cost to transfer my pension?
Depending on the company or the adviser you use, fees can vary significantly. It also depends very much on the amount of work involved.
Normally the cost of transfer will be around about 1% of the value of the transfer fund or less, but that could vary. It’s always best to discuss the fees with your adviser from the outset. That way you know exactly what the costs are before committing to the process.
But normally you would be looking at somewhere around about 1% of the value of the transfer fund.
How can a financial adviser help if somebody’s looking into transferring their pension
We’re here to guide you through the pension transfer journey – and it is a bit of a journey as a regulatory process, which is really important. There’s lots of protection for you and the main thing is that the financial adviser can ascertain whether or not transferring the pension is in your best interests.
If it’s not, the financial adviser will clearly say that. We ensure that the advice is correct, but you also have the reassurance that if anything does go wrong in the future, you have the protection of the regulator.
The value of pensions & investments and any income from them can fall as well as rise. You may not get back the amount originally invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.