A Beginner’s guide to Pension Transfers

J Finance Transferring a pension

Why transfer a pension?

Considering transferring your pension pot? Here’s what you need to consider…

There’s a number of situations where it may make sense to transfer your pension pot to a different arrangement. They include:

  • The fees are high and you would like to move to a new lower-fee pension plan.
  • Your company pension scheme is being wound up or frozen or offering enhanced transfer values.
  • To amalgamate small pensions from various providers and top-up plans.
  • When you want to add a personal pension to an occupational pension scheme.

What happens when you transfer a pension?

If you move your cash from a pension scheme into another one, your membership of the original scheme normally ends. This is not always a good idea and taking advice from a qualified financial adviser is essential before you transfer any pension benefits. Your income during your retirement years could depend on this.

Financial advisers will be able to research your current and new pension schemes and will be able to work out if you’ll benefit or lose out by transferring your pension.

When you shouldn’t transfer a pension

Anyone in the following situations should normally avoid transferring a pension:

  • If you are a current member of a company defined-benefit (DB) pension, it will often not be worth transferring to a personal scheme. The DB scheme offers guaranteed income and benefits to your spouse or family should you die and is linked to your salary.
  • If you have a defined contribution scheme with a current employer, you will normally lose their contributions if you transfer.
  • If you have an employer funded personal pension with low charges and good investment performance.

Things to consider

To make sure you don’t lose out – these are some of the risks to be aware of:

  • Exit penalties: leaving an existing policy could costs thousands in fees – check this out!
  • Transfer of risk: Switching from a final salary scheme to a personal pension, moves the investment risk from your employer to you.
  • Loss of guaranteed annuity rates (GARs): GARs mean you get a higher income, you need to check that a new provider will offer the same or better.
  • Changing your mind: while there can be a 30-day cancellation period on the transfer, most pension schemes won’t accept you back again – so be very sure of your decision.
  • Lost bonuses: Some pension providers offer bonuses to loyal customers, you may lose this with a new pension provider.
  • Reduced transfer value: if your defined benefit pension scheme is under-funded, you may be offered less than you expected.
  • Tax-free lump sums: If you had the right to take a tax-free lump sum of more than 25% under pre-2006 rules, you will normally lose that benefit.

How does a pension transfer work?

The rules that apply to pensions are very strict – and although you don’t need to know all of them, a financial adviser will.

Initially you need to establish what kind of pension you have:

  • Final Salary Pension Schemes – If you hold one of these you are guaranteed a fixed percentage of your final salary when you retire. This is known as a Defined Benefit pensions because the amount you receive is fixed, regardless of what contributions you have made. These are usually held by those who work for the public sector or a large company.
  • Money Purchase Pension Schemes – The money you pay into your pension has been invested, along with money from the others in the same scheme.  On retirement, the money you have paid in will define how much you receive – you can then use this sum to buy an annuity or fund a draw down arrangement, which will provide your income for the rest of your life. This is called a Defined Contribution pension – because your contributions determine how much you will get.
  • Personal Pension Scheme – If you do not have a pension available through your employer, you may have paid into a personal pension (or private pension) and you will be making regular contributions, from your personal bank account.
  • Group Personal Pension Scheme – Group personal pensions (GPPs) are a type of defined contribution pension which some employers offer to their workers. In a group personal pension, the scheme is run by a pension provider that your employer chooses, but your pension is an individual contract between you and the provider. Most autoenrolment or workplace pension schemes work on this basis.

You may then wish to look at investing in a SIPP (Self-Invested Personal Pensions). If you want to amalgamate your pension pots from a number of schemes, SIPPs offer a wider range of investments, including commercial property, so are suitable for more experienced investors. SIPPS can also be managed online, with your accounts looking rather like online banking, so it’s easy to see where your money is being held.

Before you make any decision about transferring your pension, do seek advice from a knowledgeable financial adviser, who can help you make an informed decision.

If you would like to discuss your pension or any financial matters, we will be happy to help. Please contact us without obligation.


Established in Berkshire in 2004, J Finance Ltd is one of the leading financial planning companies in the area. We serve clients across the South of England including Oxfordshire, Buckinghamshire, Hampshire and Wiltshire. If you would like to discuss this subject or any other financial matter, please contact us on 01635 521 300 or email contact@jfinance.co.uk.