Transferring your money purchase (defined contribution) pension
Normal reasons for a pension transfer
1: Leaving your current pension scheme can occur when you leave your employer, or if you decide to opt out or stop making contributions.
If you leave your pension scheme, the benefits you’ve built up still belong to you. You normally have the option to leave them where they are or to transfer them to another pension scheme of your choice.
Most schemes will allow you to transfer your pension pot to another pension scheme, which could be to a new employer’s (workplace) pension scheme, a personal pension scheme, a self-invested personal pension (SIPP) or a stakeholder pension (SHP) scheme.
2: You just want to transfer from an existing scheme to another
• You may have accumulated a pot and not happy with it for various reasons, for example higher costs or poorer fund performance
>Some old legacy policies may have hidden charges – be careful on “with-profit” funds
>Some providers perform better than others or have a better range of funds
• You may just want a different provider, for example their admin is very poor or you just don’t like them, not logical or necessarily sensible, but we are all human after all.
• You might want to consolidate multiple pensions and keep it all in one place and potentially reduce costs
• You might be moving abroad
A basic example of better growth % and why its sooooo important
I’m not an investment expert, but a lot of people’s pension money typically goes (or is already) in a pensions managed fund, which often don’t beat an index tracker for example.
Actually the same could be said for many so-called portfolio/asset management services which often don’t beat an index (for example the FTSE100) over the long term, but you pay for the privilege…
A bit like Champagne or a good Cava or Prosecco – is it really worth the difference!?
An example of the impact of a difference in growth returns:
If an index tracker (and it could be any fund) were to grow at say, 1.5% more each year than a managed fund on a £1,000 pot, so one at 10% and the other at 8.5%.
Over twenty years the managed fund would grow to £5,112 and the tracker would be worth £6,728. So the extra 1.5% a year results in a 24% bigger pot for you and that’s only on a £1,000 figure.
(Cash Equivalent) Transfer Value
If you’re thinking of transferring from a defined contribution scheme, you should ask your scheme administrator or pension provider for a transfer value. This is the amount that the scheme will pay to the new pension provider (check if the transfer value is lower than the accumulated value).
Also check to see if there are any charges arising if you transfer, or if you will lose any guarantees.
Before transferring you should consider seeking Independent Advice/Review with a pension specialist to check that a transfer is in your best interests. Initial discussion should be without obligation/free. Agree in advance what they will do for you and what their costs are before proceeding on anything.