Considering a Pension Transfer

A big threat to efficient pension investing is the high charges applied by some providers. By reducing the amount of money going into the Pension Company and ensuring as much as possible goes into your fund, you could see a significant improvement in your future benefits. So, when setting up a new pension, try to keep the costs to a minimum. If you have an outdated policy, think about transferring it into a low-cost scheme to help your savings grow more efficiently. How you arrange a new pension or switch an existing one, and the time it takes, will vary, depending on the provider, but there are some general steps you can follow:

Penalty Charges

If you wish to transfer an existing pension, find out how much your current provider would charge you to move. Even if you have held money with a provider for many years and your funds have not performed well, you may still face penalties for transferring. With-profits funds held with life companies, for example, might have transfer penalties and extra charges known as market value adjusters (MVAs) to make up for weak stock markets. Advisers say it is not uncommon to see these funds impose transfer penalties of as much as 10-20 per cent of the value.

Request A Transfer Valuation

A transfer valuation from your existing provider will give an up-to-date valuation of the funds held within the scheme and will break down any transfer fees and other penalties to be deducted. You should also check whether you are giving up any other benefits, such as a guaranteed annuity option, which some older-style pensions offer.

Understand The New Scheme

You will need to understand from an early stage the type of pension you wish to set up or transfer to, and which underlying funds you want to invest in. Stakeholder pensions cap annual fees at 1 to 1.5% but tend to have a limited investment choice. Some basic low-cost personal pensions may cost the same or less, and some may even have a SIPP (self invested personal pension) facility, although there may be additional charges for this. They offer a range of underlying funds and the annual cost depends on which you choose.

Is It Worth Moving?

If you have long enough before you retire, it could still be worth switching to a lower cost pension, even if you will have to pay large penalties to do so. Ask your adviser to obtain a projection of your benefits at retirement if you were to remain in the same funds. Then your adviser will be able to provide a comparison based on your new funds.

Your New Pension Application

Once you have decided which pension to open, the process should be straightforward. Some low-cost personal pension providers require you to go through an adviser, but others let you apply online. You will have to complete an application form, which will include details of any funds you want to transfer. The new company will contact your old provider to request the transfer. Your existing company will issue discharge forms that you will have to sign.

Switching

Once your existing company has confirmation that you wish to transfer elsewhere, it should release the funds. Advisers say this process can be done in just a week or can drag on for months, depending on the provider. You have very little control over the precise day when the switch will take place, so if you are concerned about market timing, you could ask for your funds to be moved into cash in advance.

Transferred Funds

Your funds will be deposited into your new scheme in cash and you will then have to move them into your chose investment. To discuss how you can get the most out of your pension planning, please contact us for further information.