Is it a good idea to transfer my pension? A brief guide to the risks and benefits

Often, when it comes to retirement planning, people wonder whether or not transferring their pensions makes sense. Due to the number of pension options available, as well as life’s unpredictable changes, individuals may consider transferring their pension for a variety of reasons. As UK retirement advisers, we’re here to shed some light on this complex topic in this comprehensive guide and provide you with valuable insights.

Understanding pension transfers

Before delving into whether it’s a good idea to transfer your pension, let’s first understand what a pension transfer entails. A pension transfer involves moving funds from one pension scheme to another. This could involve transferring funds from an old workplace pension to a new employer’s scheme, consolidating multiple pensions into one, or transferring to a private pension provider.

Factors to consider before transferring your pension

Current pension scheme 

Assess the features and benefits of your existing pension scheme. Consider factors such as investment options, fees, flexibility, and guarantees offered by the scheme. At Hilltop, we thoroughly investigate every policy within our assessment to make sure we make the right recommendations for you.

New pension provider 

Research potential new pension providers and schemes thoroughly. Compare their investment options, fees, performance track record, and customer service reputation. According to the Pensions Regulator, in 2023, there were over 25,000 pension schemes available in the UK. 

Transfer fees

Be aware of any transfer charges or exit fees associated with transferring your pension. These costs can eat into your retirement savings, so it’s essential to factor them into your decision-making process.

Investment performance

Evaluate the investment performance of both your current and potential new pension schemes. Consider factors, such as historical returns, volatility, and alignment with your risk tolerance and investment objectives.

Guarantees and benefits

Take into account any guarantees or benefits provided by your current pension scheme, such as guaranteed annuity rates or death benefits. Consider whether these benefits outweigh the potential advantages of transferring. If your current pension comes with a guarantee, you may need a pension transfer specialist to move this pension to another scheme.

Tax implications

Understand the tax implications of transferring your pension. Depending on the type of pension and your individual circumstances, transferring could have tax consequences, such as incurring tax charges or losing tax benefits.

Long-term goals

Consider your long-term retirement goals and how transferring your pension aligns with them. Will the new pension scheme better facilitate your retirement objectives, or are you sacrificing valuable benefits by transferring?

When might it be a good idea to transfer your pension?

While pension transfers aren’t suitable for everyone, there are certain scenarios where transferring your pension could be advantageous:

Consolidation or combining your pensions

If you have multiple pension schemes scattered across different providers, consolidating them into a single scheme can simplify administration, potentially reduce fees, and provide a clearer overview of your retirement savings.

Better investment options

If your current pension scheme offers limited investment options or underperforms compared to other available options on the market, transferring to a new scheme with better investment opportunities could potentially boost your retirement savings.

Improved flexibility

Some pension schemes offer greater flexibility in terms of accessing your funds, taking income, or passing on benefits to beneficiaries. If flexibility is important to you, transferring to a scheme that offers more options could be beneficial.

Lower fees

If your current pension scheme charges high fees or has hidden costs that erode your savings over time, transferring to a scheme with lower fees could help preserve more of your retirement savings. A difference of 0.5% versus 1.5% fee might seem insignificant at first glance, but over time it can add up to thousands of pounds in lost savings. 

It’s important to shop around and compare different pension schemes to find the right one for your needs. Don’t just focus on the monthly fee but also consider the total fees, including any hidden charges. Plus, be sure to always read the terms and conditions before signing up for any pension scheme.

When might it not be a good idea to transfer your pension?

However, there are also circumstances where transferring your pension may not benefit you financially:

Loss of benefits

If your current pension scheme offers valuable benefits or guarantees that would be lost by transferring, carefully consider whether the potential advantages of transferring outweigh the loss of these benefits. This is especially important if you have a final salary pension.

High exit fees

If your current pension scheme imposes significant exit fees or transfer charges, transferring your pension could result in a substantial reduction in your retirement savings. Some restricted financial advisers could also charge a fee to cancel their services if you are under their minimum time frame.

Unsuitable investment risk

If the investment risk of the new pension scheme doesn’t align with your risk tolerance or investment objectives, transferring could expose you to unnecessary risk and jeopardise your retirement security. On the flip side, if you transfer to a less risky fund than you’re comfortable with, then you could potentially be missing out on valuable growth due to the more constricted risk and performance.

Lack of understanding

If you’re unsure about the implications of transferring your pension or don’t fully understand the features and benefits of the new scheme, seek advice from an FCA-regulated and qualified pension adviser, like our team at Hilltop, before making any decisions.

The importance of seeking professional and qualified advice

Given the complexity of pension transfers and the potentially significant implications for your retirement savings, it’s crucial to seek professional advice before making any decisions. A qualified and regulated pension adviser can assess your individual circumstances, evaluate the pros and cons of transferring your pension, and provide personalised recommendations tailored to your retirement goals.

Speak to Hilltop today

In summary, whether it’s a good idea to transfer your pension depends on various factors, such as your current pension scheme, long-term goals, investment options, fees, and tax implications. While pension transfers can offer benefits such as consolidation, improved investment opportunities, and greater flexibility, they also carry risks and potential drawbacks. 

Before making any decisions with lasting consequences, it’s crucial to seek guidance from a qualified pension adviser. Don’t risk your financial security, and that of your loved ones, by making impulsive choices. Contact Hilltop Financial Planning today to explore your options and receive personalised pension advice and guidance from our team. Your future financial well-being is too important to leave it to chance.

For pension advice made personal, contact us today at 0161 413 7051 to speak to one of our pension professionals.