Pension Transfers
Your basic information guide to UK pension Transfers
Can I Transfer Any Pension?
Almost all types of occupational and private pensions can be transferred. There are some exceptions, however, particularly for public sector workers.
• If you left a public sector pension scheme before 1st January 1986, you can’t transfer
• If you are a member of a final salary pension scheme that provides a pension that rises in line with inflation, you can’t transfer
• If you are within one year of your pension scheme’s retirement age, you can’t transfer
The good news is that in all of the scenarios above, you would almost certainly end up with a big reduction in your pension entitlement if you transferred to a different pension – so the rules are protecting you.
Pension Transfers: Common Questions / FAQs
Q: Can I transfer a pension into cash or an ISA?
A: No. Money in a pension fund can not ever be taken out of it until you retire – and even then there are strict rules controlling what can be done with the money.
You can only ever transfer money from one pension to another pension.
The reason for this is (mostly) to do with preventing fraud.
Pension contributions are subject to tax relief – you don’t pay income tax on money you put into your pension. If you could then transfer it out again to cash, the result would be widespread tax evasion!
Q: Can I transfer my old pension into any new pension scheme?
A: Not necessarily. Pension schemes aren’t required to accept inward transfers and some do not.
Before you start a pension transfer, you should take advice from a financial adviser (IFA) about your choice of pension scheme and make sure your new pension will definitely accept your transfer.
Q: Are there fees for a pension transfer?
A: You may be charged fees when transferring a pension – in some cases these can be several percent of the transfer value and should be considered before deciding whether to transfer.
Even if your new pension offers better benefits, you need to know if they will outweigh the fees you will pay.
Fees are usually deducted from your transfer value at the time of the pension transfer.
Q: My existing employer’s final salary pension scheme is in deficit (short of funds). Should I transfer out of it?
A: There is no one correct answer to this question. You should take advice from an IFA about your options.
These are some of the factors you should think about:
• Why is the company scheme in deficit – is it just a short-term glitch or is the company in trouble?
• If you transfer out at this point, you will be likely to get a reduced transfer value, in proportion to the scheme’s deficits. If you stay in and the fund gets back in the black again, you will get your full pension entitlement back, too.
• In April 2005, the government introduced a new scheme to protect people whose company pension schemes go bust. Transferring out could mean you lose your entitlement to this protection. (See the UK government’s Pension Protection Fund website for more details).
Q: My employer has offered me a cash lump sum to switch from the company’s final salary pension scheme to a personal pension. Is this a good idea?
A: Final salary schemes are increasingly expensive for companies to run, and not surprisingly, many companies are closing them as fast as they can.
It’s perfectly legal for your employer to make you an offer like this – but remember that they are only doing it to save money, not to help you.
If you are offered a cash incentive, remember that you will have to pay income tax on this money – which could reduce its value considerably.
If you have received an offer like this, you need to get in touch with an IFA and have them analyse all the facts and figures to see whether you will benefit from transferring out of your employer’s pension scheme.
Q: My employer has just gone bankrupt. What will happen to my company pension?
A: You may have heard or read in the newspapers of people losing their entire final salary pensions due to their employer going into administration.
The good news is that the government now provide some protection from this. The Pension Protection Fund was launched in April 2005 and will take over company’s pension responsibilities in situations like this, subject to some limits.
Whatever happens, you shouldn’t be left with nothing, although your pension may not be quite as much as you would have had originally.
When a company becomes insolvent (bankrupt), their pension scheme will normally have to be wound up and closed.
If you are in this situation with a final salary pension, you probably won’t be able to transfer your pension out once the company has gone into administration.
You will have no choice but to wait until the winding-up process is complete to see how much you will get, but unlike people in the past, you should be protected by the Pension Protection Fund.
Q: I think I have some pensions I have lost track of over the years. Can I find these and transfer them into my current scheme?
A: You will need to take professional advice over whether to transfer your lost pensions, but you can find them using the government’s Pension Tracing Service.