What is pension transfer and why would you do this?
Many people have had more than one employer, and after changing your employer you could be joining a new company pension scheme, what we will do is combine your collection of pension into one pot, this should reduce your fee’s, stop trail commission as some providers keep an additional fee with the pension for as long as you have it open.
Why is it better to seek advice when you transfer a pension?
Switching without taking independent, specialist advice could mean you lose more than the extra cost of commission and management fees:
- Exit penalties: If there are any exit penalties on your existing policy, they could cancel out the benefit of transferring to a new provider.
- Loss of benefits: Your existing pension fund may include valuable benefits such as guaranteed annuity rates at retirement.
- Transfer of risk: If you’re thinking of transferring from a final-salary scheme to a personal pension, the investment risk switches from your employer to you, as could the scheme charges.
- Reduced transfer value: If you're in a final-salary scheme that's under-funded, the transfer value you are offered may be reduced.
- With profits: Some providers, including Aviva, choose their with-profits fund as the default option. If you switch to another provider, you could be hit with a market value reduction (MVR). Prudential and Scottish Widows currently impose an MVR on some products.
- Changing your mind: Pension transfers usually offer a 30-day cancellation period. However, if you're thinking of cancelling, make sure your old pension scheme will take your money back – many won't.
- Tax-free cash: If you are switching from a fund offering protected tax-free cash of over 25%, you could lose this protection if you switch provider and add to the new fund.
- Lost bonuses: Aegon offers a 4% fund bonus to investors who stay with them (and make regular contributions) for 10 years. Skandia offers a five-yearly bonus on some of its pension options, while Prudential reduces its annual management charge the longer you stay with it. A new provider may not be able to match these offers.