IFAs and pension providers talk up the benefits of pension transfers – but is changing horses so close to retirement worthwhile?
Moving pensions is only worthwhile if you are achieving some financial objective and sometimes consumers must weigh up the cost of switching against the benefits. If you feel that moving your pension might be for you, here are some of the common reasons behind transfers:
- Pension freedoms – Moving from a scheme that does not offer pension freedoms to one where you can draw cash from the age of 55 is attractive for many retirement savers, especially those in final salary schemes where they cannot take money until they are 60 or 65 years old – or will be penalised for retiring early
- Avoiding the lifetime allowance – Expats can move their pensions into a Qualifying Recognised Overseas Pension Scheme (QROPS) where the lifetime allowance does not apply providing the fund was worth less than the cap at the point of transfer
- Taking control of the fund – many managed pension funds play safe in the years approaching retirement and switch investments into conservative low return options. If you want to speculate a little more, moving to a SIPP and taking a more hands-on approach is popular even though the prospect is riskier
- Accepting a golden goodbye – Many FTSE employers are offering big cash carrots to encourage staff to leave their workplace final salary pensions and their guarantees of index-linked retirement incomes
- Consolidating pensions – Group several smaller pensions into a larger fund with lower charges and pension freedoms is another good reason to consider a pension transfer
- Passing on an unspent fund – Some older pensions are lost if the member dies. Instead of the fund or the contributions going to family or loved ones, they simply disappear. Moving to a more up-to-date plan avoids this problem
- Watch out for early exit fees – Some pension providers charge between 5% and 10% of fund value to lock customers into older pensions that offer poor value for money. Watch out for these charges and make sure you ask your provider if early exit fees apply before making the switch to avoid a nasty surprise
Whatever the reason for considering a transfer, don’t forget that consumers must speak to the free Pension Wise service or take advice from a financial adviser before moving any fund worth £30,000 or more.