Should i transfer pension

You might also face a tax charge from HMRC. The government has now banned cold calling about pensions. Transferring and merging pensions. MoneyHelper is the new, easy way to get clear, free, impartial help for all your money and pension choices. Whatever your circumstances or plans, move forward with MoneyHelper. Download app: WhatsApp. For help sorting out your debts or credit questions. For everything else please contact us via Webchat or telephone. Got a pension question? Our help is impartial and free to use.

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In many cases, to achieve a pension pot large enough to buy an income for life of equal value to the DB pension foregone will require a relatively high rate of return which in turn would imply taking a high degree of investment risk.

Whilst this is not an absolute bar to an adviser recommending a transfer, many advisers would be nervous about recommending a transfer in such a situation. However, as we discuss later in this guide, this is not the only consideration — or even necessarily the most appropriate one — when deciding whether or not a transfer would be in your interests. If an adviser concludes that a transfer is not in your interests, this is not necessarily a barrier to the transfer taking place.

If you are insistent that you wish the transfer to go ahead, some advisers will implement the transfer in any case, stressing that this is not in line with their advice and that you need to accept responsibility for this decision. Others will simply decline to facilitate the transfer and you will need to go elsewhere. This is something worth exploring with your adviser before starting the process.

It's important to understand that anyone wishing to proceed to transfer on an insistent client basis must first have been through the full advice process. Abridged advice alone is not sufficient to proceed as an insistent client.

In the next two sections we consider some of the reasons why converting your DB pension rights and putting the money into a DC pension instead might be a good idea for some, and then some of the reasons why others might be better advised to keep their pension rights where they are. There is also no right to transfer if you're in the 12 months leading up to your pension scheme's normal retirement age. Whilst DB pension rights can be very valuable and attractive, they can also be rather rigid and inflexible.

For example, a scheme may have a set pension age and although taking an early pension may be possible, it may not be on favourable terms. In this case, taking your pension earlier may mean it is much lower than if you had waited until you reached pension age.

Similarly, a scheme may have generous arrangements for married members who leave behind a widow or widower but these may be of no value to unmarried members of the scheme. If you convert your DB pension rights and put the money into a DC pension instead, then you benefit from the new pension freedoms which allow you much more choice about how you use your money.

In addition, the cash amount that you are offered will generally reflect the average cost to the scheme of providing benefits to widows and widowers, so if you are a single person you will get some of the value of that provision which you would not have done if you had stayed in the scheme 5.

In terms of flexibility, those aged 55 and over can now generally access their DC pension pot as they wish. So if you wanted to retire at 60 and live off your savings you could do this with a DC pension whereas you might have had to wait until you were 65 if you had stayed in the DB scheme. Of course, transferring the money does not mean it will last any longer and indeed if the valuation of the rights is done on a cautious basis you may be losing some value when you transfer.

So although you can take your pension earlier under a DC arrangement, you will be spreading the value of your pot over more years than if you had waited until the scheme pension age under the DB arrangement. Another important aspect of the increased flexibility following a transfer is that you can decide how you want to spread your income and spending through your retirement rather than having a rigid amount throughout. For example, you may take the view that you want to spend more in earlier retirement while you are more mobile and able to travel, and spend less later in retirement, and having a DC pot to draw on enables you to make choices of that sort.

Whilst income from a private pension is subject to income tax, most pensions allow you to take one quarter in the form of tax-free cash. In a DB pension this usually means you get a cash lump sum at retirement plus a lower regular pension than if you had not taken the cash 6.

In a DC pension you can generally take one quarter of your pension pot as a tax-free cash lump sum provided you are aged 55 or over. One reason why a transfer to a DC arrangement may be attractive is the potential to draw a larger tax-free cash lump sum than if you remained in the DB scheme.

If you stay in a DB arrangement you can generally give up a quarter of your pension rights in exchange for a tax-free lump sum. However, the value you get is generally less than a quarter of the value of your pension. This can be for a number of reasons. These include the fact that:. One way of thinking about these rates for converting pension foregone into a lump sum is to think about how long you are likely to live 7.

An alternative would be to withdraw your entire DB pension rights and transfer them into a DC arrangement. Once the money is in a DC arrangement and assuming you are aged 55 or over you can then take one quarter of the whole pot as a tax-free lump sum and this is likely to be a larger figure than under the DB arrangement. If tax-free cash is particularly important to you, there may be some advantages to transferring out, especially if your scheme is one which offers relatively ungenerous tax-free lump sums within the scheme 8.

If you simply put your transfer value into a DC pension some years before retirement then whether or not you get a larger tax-free lump sum depends on the investment performance of the funds between the transfer and when you take the lump sum. Whether or not it makes sense to stay in your DB scheme may depend in part on who will be left behind after your death and to what extent you want to support them financially.

Recent changes in the tax rules on inheritance of certain sorts of pensions have made it more attractive to consider having your pension rights outside the existing DB scheme. If you remain a member of your current pension scheme then when you die there may be a pension for your surviving widow or widower. If you die very early perhaps a few years into receiving your pension your widow or widower may benefit from a guarantee period where the full pension has to be paid for a minimum of say five years.

If you are part of a couple but not married, those rights may be more limited but this will vary from scheme to scheme and may be at the discretion of the scheme trustees. And there may also be some pension entitlement to any surviving dependants such as children of school age.

In particular there is nothing left to pass on to your beneficiaries. An alternative is to convert your DB pension rights and transfer the money into a pension if you are still saving or a drawdown arrangement. In this case, if you were to die, the value of the assets in the pension or investment could pass on to your beneficiaries. One particularly important consideration is the tax treatment of such money. The rules are 8 that if you die before the age of 75, then the cash balance left behind can be received by your beneficiaries completely income tax free.

Even if you die over the age of 75 then whoever inherits your pot only has to pay income tax in the usual way when they make withdrawals. Furthermore, if your beneficiaries do not draw on this inheritance perhaps because they already have sufficient income then it can be passed on to subsequent generations 9. However, it is worth bearing in mind that present or future governments could change the rules on the tax treatment of inherited pensions at any time if they wished.

It is not always possible to transfer funds so check what the scheme rules say. There may be benefits to transferring a pension. Most independent advisors counsel against transferring from a defined benefit to a defined contribution scheme unless there are exceptional circumstances and you want to take your pension early or as a cash sum. You are swapping a guaranteed benefit for an uncertain return and probably higher costs.

Moving funds from one defined contribution scheme to another may be beneficial but there are four main areas to investigate before making a decision. If you want to consider transferring, you should speak to a financial adviser as quickly as possible. Many schemes will charge for providing more than one transfer value in a year — and may refuse to provide a further transfer value until 12 months have elapsed since the original one was issued.

A transfer of this kind should not be treated in isolation. You should consider your other financial arrangements as part of the decision-making process.

Very few people stay in the same job throughout their working life anymore. Also, consider the pension arrangements that your spouse or civil partner has. These should be taken into account as part of any decision-making process.

Check other pension arrangements for yourself and your spouse or civil partner, as these should be considered when you make your decision. You can find more details about how to trace your old pension pots on the Money Advice Service website by clicking here. Alternatively, as part of the financial planning process, we can track down pensions on your behalf, and we can also help you work out your State Pension entitlement.

The Lifetime Allowance is the maximum you can tax-efficiently save in pensions. This figure includes investment growth on your fund, which should be factored into any calculations. Whether you transfer or not, you should always take the Lifetime Allowance into account, as you may end up with an unexpected tax bill if you exceed it.

If you exceed it or feel you might do in the future, there are protections you can apply for, as well as alternative pension options, which may help reduce or mitigate completely the tax potentially due. We can help you understand the implications and plan accordingly, both in terms of potentially exceeding the allowance, and how Lifetime Allowance protection can impact on future pension contributions.

For example, if your motivation for transferring is to access a lump sum, you might have savings you could use instead, and therefore leave your Final Salary scheme untouched.

Retirement can be a longer process, maybe involving a gradual reduction in your working hours, or working on a consultancy basis before stopping work. This leads us on to what you want to do. You may have plans to travel and tick things off your bucket list. Alternatively, you may want to see more of your family and spend time with your grandchildren.

A key part of our advice process is looking at your cashflow forecasts and helping you put a robust financial plan in place, so you have the best possible chance to achieve your retirement goals. You should also take your family circumstances into account when deciding whether to transfer.

You could have relatives who may well need your support, including elderly relatives with care provision or younger relatives with university fees, or a deposit on a house. It can also mean a pension fund being passed down through generations in your family, rather than in a Final Salary scheme where scheme rules will only permit a pension to be provided to your spouse or civil partner on your death.

You should also carefully consider the respective death benefits, the amount paid to your surviving beneficiaries when you die, of staying in your pension scheme and transferring to another arrangement. The benefits are very different.