Our top 5 considerations before moving your pension

Approaching retirement can be a bittersweet thought. On the one hand there is excitement about never having to work again, and on the other, concern as to whether you’ve done enough to have a comfortable retirement. Many individuals suffer from anxiety over the decisions that need to be made relating to life after work, for example:

• "How much do I need to have a good quality of life and meet my expenditure needs?”
• “Is now the right time to retire?” 
• “Will my investment returns sustain my expenditure?”
• “How do I even access my pension?”
• “What happens to my pension when I die?
• “Do I have enough in my pensions and other savings?” 

And the list goes on. In particular, workplace pensions that have been left to evolve over time with no proper management, may no longer meet the needs of the scheme member i.e. you. So, what are the key factors to consider before moving your pension to another provider, so you can ensure your pension can benefit you and your financial plans? Here's our top 5 considers before moving your pension.

Important Information: This article does not delve into the considerations for Defined Benefit (Final Salary) Pensions – transfers of these schemes are far more complex and require specific financial advice.

Retirement Benefits 

How can I access my pension funds at retirement?

Understanding the type of pension you have will determine the options relating to how you can access your pension. Here are the main methods to access your pension for retirement:

• Annuity 

Use your pension pot to buy an annuity, which provides a guaranteed income for life or a fixed term. This income can either be level or index-linked to keep up with inflation. 

• Flexi-Access Drawdown (FAD) 

This allows you to take your benefits from your pension either a bit at a time or all in one go. This can be beneficial, for example, where you require different amounts from your pension at different times during your retirement, or where you expect your income tax band to change over the course of your retirement.

• UFPLS (Uncrystallised Funds Pension Lump Sum)

This option allows you to take a lump sum whereby 25% will be tax-free and 75% will be taxable. Each scheme will have its own rules on if you can take multiple lump sums from your pension or only a single lump sum.

Unfortunately, not all pensions are equal, and therefore some of your pensions may have the full suite of options and some may have limited options, therefore it is important you understand what options are specifically available across each of your pensions. This could determine how you can draw an income in retirement. It’s also important to think about what options are suitable for you as a person, for example, if you are risk-averse and want a secure, fixed income for the rest of your life, annuities are a viable solution. However, if you are unsure how much income you will need in retirement and if you expect your spending requirements to change, one of the flexible options could be more beneficial, or the combination of the two.

Investment Choices

What funds can I invest into?

Pensions offer many different investment options and number of funds that you can invest in. Typically, Self-Invested Personal Pensions (SIPPs) offer the most diverse and wide-ranging fund selection (4,000+). Whereas large workplace pension providers may offer funds that are specific only available to the pension scheme and provider, restricting your choices of investment. You need to decide what your short- and long-term objectives are and whether your pension caters to your risk appetite with the funds available, as this will evolve over time.

Fees & Charges 

Will the new pension be more expensive than my existing one?

Before moving your pension, you should always evaluate the costs associated with each scheme. Not all pensions operate the same charges; so, it would be prudent to look at the charges schedule for the new provider and scheme. Typical charges to check for include:

• Initial set-up fees
• Annual Management Charges (AMC) for the investments you might choose
• Platform fees for the service/ongoing administration involved 
• Charges for specific transactions – transfer penalties, early withdrawal fees, switching investment funds 
• Trading fees for the buying and selling of investments within fund

Death Benefits

Can my loved ones access my pension funds upon my death?

Leaving your pension behind after death is a very common occurrence, given that pensions remain outside of individuals estates for Inheritance Tax purposes. Therefore, you want the beneficiaries of your pension to be able to access your pension in an accessible and tax-efficient manner. The main ways to access pensions on death include: 

• Lump sum return of fund – This is the value of the pension on death which is paid as a lump sum to your nominated beneficiary.
• Beneficiary Drawdown – This allows you to pass on your pension to your beneficiary so that they have the option of drawing benefits from it as and when required. 
• Annuity – On death, the value of your pension can be used to purchase an annuity from your pension provider. This will provide a secure regular income for your beneficiary.

Pension Guarantees

What benefits could I lose on transfer?

Some pensions come with a guarantee, which can impact the amount of income you receive when you retire. These ‘safeguarded’ benefits might include a guaranteed annuity rate (GAR) or a promised minimum level of income (guaranteed minimum pension). These benefits are valuable in most cases so it’s important to take them into account when assessing your options, given that these guarantees are rarely retained when transferring to another provider. These can be very complex so it’s sensible to seek financial advice on these benefits.

Having the wrong pension scheme for your requirements can be detrimental to your overall retirement plans. Having a financial adviser can help you navigate through the quirks and nuances of pension schemes and help simplify the complexities, to ensure you are appropriately positioned for your long-term needs and objectives. 

The details in this article are for information only and do not constitute individual advice.

The Financial Conduct Authority (FCA) does not regulate estate planning, tax or trust advice.

The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.