There are several reasons you might be tempted to transfer your pension to a different provider, including so you can benefit from lower charges, a wider range of investment options, or even cash incentives.

Some pension providers offer tempting cashback deals to persuade pension savers to move their retirement savings across. However, it’s generally unwise to switch pension providers solely to benefit from a cash perk. There are plenty of far more important considerations if you’re thinking of transferring your pension to a different provider, such as whether you’ll lose valuable benefits in the process, or have to pay hefty fees to move your pot.

You need to work out if transferring your pension is the right decision for you, and will benefit you long-term. For example, you might want to move several pensions into a single pot to help reduce your pension paperwork. Read more in our article Should I consolidate my pensions? You may also be able to pick from a wider choice of investments that could potentially boost your returns.

Here, we look at some of the things you need to consider before you transfer your pension to a different provider, so you can ensure you’re making the right decision for you.

If you’re thinking about getting professional financial advice, you can find a local financial adviser on VouchedFor or Unbiased.

Alternatively, if you’re looking for somewhere to start, we’ve partnered with independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.

Fidelius are rated 4.7 out of 5 from over 1,000 reviews on VouchedFor, the review site for financial advisors.

1. What type of pension do you have?

If you have a defined contribution pension, the amount you end up with at retirement age depends on how much you (and your employer if it’s a company scheme) have paid into your pension, as well how the investments in your pension savings have performed. Learn more about defined contribution pensions in our guide What is a defined contribution pension?

It’s usually relatively easy to transfer from this type of pension to another defined contribution scheme. However, if you have a final salary pension or defined benefit pension, it’s rarely a good idea to transfer it to a defined contribution pension, as you’ll effectively be giving up a guaranteed annual income for life. Defined benefit pensions also offer some protection from inflation, as your payouts typically rise in line with with the cost of living. Read more in our article What is a defined benefit pension? 

If you’ve a defined benefit pension scheme with a value of more than £30,000 that you want to transfer, it’s compulsory to seek professional financial advice, as you could lose valuable benefits by moving to a defined contribution pension. Read more in our guide Should I transfer my final salary pension? 

2. Is there a pension exit fee?

It’s important to check if you’ll have to pay a fee to move your pension to another provider, particularly if you have an older pension plan.  

So-called ‘exit fees’ vary, but have been known to amount to as much as an eye-watering 10% of the pension in some historical cases. However, the Financial Conduct Authority (FCA) has imposed a cap on exit fees of 1% for savers over 55 who wish to move to a different provider, or withdraw their money, while exit fees have been banned on new plans since March 2017.

Even so, savers in older schemes may still face these fees, so check if they apply to your plan before you transfer your pension. Depending on the fee level, they may still be worth paying if you have plenty of time before retirement to hopefully recoup this money. However, if you’re approaching retirement, there may not be sufficient time to make up for losses incurred from high exit fees. If these fees amount to thousands of pounds, they could make a big dent in your pension and affect your plans, particularly if you’re close to retirement age.

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3. Is there a cash incentive to transfer?

Some pension providers may offer attractive headline incentives such as generous cashback if you transfer your pension to their plan, but this shouldn’t be the deciding factor if you’re thinking about moving your pot.

Tempting people to move their pension using cashback is nothing new but, for starters, a growing number of pension scams makes it important to be vigilant about such offers (read more about these below). Ultimately, the ongoing charges you’ll pay over the years for your pension, and investment performance is of far greater importance than a cash incentive. The impact of these can easily wipe out a cash perk within a short period of time.

However, if you know that the pension provider is reputable, offers competitive charges, and you’re comfortable with the investment choice and service, and it happens to provide a cash incentive, then it may be worth making the switch. Most importantly, do your homework first and base your decision on other factors aside from a cash perk.

4. How much are pension charges?

Check the charges you’re paying on your current pension and how much you’ll pay a new provider before transferring your pot. The most important charge to check is the annual management charge, which is paid to your provider for administering your pension, and includes the costs of things such as investing your contributions. 

Annual management charges for pension schemes have fallen over recent years, and these days, annual costs of 1-2% are considered expensive, so if you’re paying this amount, it may be worth considering moving your pension to a cheaper plan. Read more in our article What pension charges am I paying? 

Typically, the older your pension scheme, the higher the annual management charge will be, with fees that in some cases can amount to as much as 2% of your pension’s value each year.

Fortunately, there are plenty of low-cost pensions on offer from a variety of providers. Some types of personal pensions such as stakeholder plans are particularly cheap, typically with charges of around 0.6% or less a year in total, but you may have limited investment choices. Learn more about different kinds of pension in our article What are the different types of pension? 

Self-invested personal pensions (SIPPs) usually offer the widest range of investment options, and these days, annual platform fees of below 0.5%, or a single, low flat fee, are common. You’ll need to be comfortable making your own investment decisions, however, although you could simply opt for a globally diversified low-cost fund, for example. Read more in our article Everything you need to know about SIPPs. 

If you’re unclear on your pension’s charges, check for the information on your provider’s website, and it should also be visible on your online account, or contact your provider. Charges should also be detailed on any documents you received when you set up your pension, and any statements you receive.

5. Is there a wide investment choice?

If your current pension provider offers limited investment options, you may want to transfer your pot to benefit from a wider range of investments. These may be more appropriate for you than the investments your retirement savings are currently invested in and might better suit your approach to risk. Read more in our guide What’s your attitude to risk?

It’s important to check where your pension savings are invested as the investments you choose and how they perform will affect the amount of income you receive at retirement. Find out more in our article Where is my pension invested?  

As mentioned, SIPP providers offer a wider range of investments than other types of personal pension. For example, you may be simply given a few fund options in a personal pension, whereas with a SIPP you’d typically be able to access funds, shares, and more sophisticated investments such as exchange-traded funds. 

However, this also means that you take on the risk involved in choosing your investments, so you need to be comfortable making your own investment decisions. Remember that no-one can be certain how a particular investment will perform, and your investments could fall as well as rise in value.

6. Does your current pension offer any valuable guarantees and benefits?

If you’re paying into an older pension scheme that started in the 1980s or 1990s, for example, it could come with valuable guarantees that you’ll lose if you transfer your pot to a different provider. Therefore, you may be wise to stay with your current pension provider to benefit from a guaranteed income in retirement.

Some pension providers offer various other benefits if you remain a scheme member. For example, certain workplace pension schemes offer life insurance, or the opportunity to retire early, and if you move to another provider you’ll lose these benefits. Of course, transferring your pension may still be worthwhile, depending on the value of these benefits and your personal circumstances, but it’s a good idea to seek professional financial advice to ensure you’re not making a decision that could leave you worse off in retirement.

Check with your existing provider about any special guarantees or benefits that come with your current plan so you can make an informed decision.

7. Will you be ‘out of the market’ while you transfer?

Bear in mind that some pension transfers can take weeks to complete, and if you’re selling your investments to transfer cash to a new provider this means you’ll be out of the market during this period. Any gains you might have made on your investments during this timeframe will be forfeited, but conversely, you also won’t suffer any losses you may have incurred if markets fall.

You may be able to make a so-called ‘in-specie’ transfer of your investments to a new pension, which means you move your investments across without having to sell them. However, this can extend the transfer time frame, and be a more complex process than transferring cash.

8. Is it a pension scam?

If you’re thinking of transferring your pension, beware of pension scams, which have become increasingly sophisticated in recent years. Scammers usually target those aged 55 and over, as they can access cash lump sums through their pension. You may be offered an incredible return on an investment by a pension scammer, for example, or told that you can release money from your pension early. Make sure to stay on your guard, as scams can be difficult to spot. 

Any firm you deal with should be authorised and regulated by the Financial Conduct Authority (FCA). You can check whether they are listed on the FCA Register or by calling the FCA helpline on 0800 111 6768.

You can also visit the FCA’s ScamSmart website to find out more about scams. Read more about common pension scams in our article Don’t let scammers steal your retirement. If you believe you’ve fallen victim to a scam once you’ve started the pension transfer process, contact your pension provider immediately and ask if they can stop the transfer.

If you think you’ve already been caught out by a pension scam, contact Action Fraud online or by calling 0300 123 2040.

9. Have you sought professional advice?

If you’re thinking about getting professional financial advice, you can find a local financial adviser on VouchedFor or Unbiased.

Alternatively, if you’re looking for somewhere to start, we’ve partnered with independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.

Fidelius are rated 4.7 out of 5 from over 1,000 reviews on VouchedFor, the review site for financial advisors.

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