Pension transfer rules
Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.
There are various reasons why you may decide to move a portion or the entirety of your pension fund. Perhaps you’re about to change jobs or are about to move overseas and wish to move your pension to a scheme that’s in place in the country that you’re relocating to. You may also have pensions in place with more than one employer and would prefer to bring them all together or have a desire to transfer to a better pension scheme. Sometimes the reason may be out of your control too, such as if your current pension scheme is being closed or wrapped up.
No matter what has prompted you to make a change, take note that there are pension transfer rules in place for you to be aware of. Here, we detail some general rules about transferring a pension.
Some general rules about transferring a pension
If you’re in either a private sector defined benefit scheme or a funded public sector pension scheme — the local government pension, for example — then a pension transfer can be granted. Transfers don’t count against your annual allowance either.
There is a good chance that you’ll have multiple defined contribution pension pots in place if you’ve had over one job across your career. While you may think that combining the pots together will make managing your pension easier, take note that you could be charged fees to transfer from one pension pot to another. There is also a chance that you’ll lose some special features associated with one pot, such as the guaranteed annuity rate. Rules will be different from one pension provider to the next, so you will want to speak to both the provider(s) you’re planning to leave and those you’re aiming to use going forwards separately to learn about their specific guidelines.
Be aware of the transfer value as well, which is the amount that your pension pot would be worth if you went through with the decision to move to a different provider. Understanding your pension pot’s transfer value can help you determine if your pension has an ‘early exit fee’. Should the transfer value and the value of your pension pot be equal, there is only a small chance that you’ll be charged a fee for undertaking a pension transfer. When your transfer value is below the value of your pension pot though, an early exit fee could be applied when making a transfer.
On the topic of fees when making a pension transfer, also take note that you will need to pay tax on the transfer if you’re moving your pension to either a non-registered UK pension scheme or an overseas scheme deemed as being ‘unrecognised’.
It is a legal requirement that financial advice must be given to you if you are looking to make a transfer from either a:
- Defined benefit pension that’s worth more than £30,000, or;
- Defined contribution pension that’s worth more than £30,000 and has a guarantee about what you’ll be paid come retirement — a guaranteed annuity rate, for instance.
Please also be aware that pension transfers can’t be carried out from ‘unfunded’ public sector pension schemes. The NHS scheme and the Teachers Scheme are two examples of these.
Rules when transferring a pension to another UK pension scheme
There is nothing stopping you from transferring your UK pension pot to another registered UK pension scheme or using it to purchase a ‘deferred annuity contract’. This is an agreement which sees you being granted a guaranteed income in the future.
However, if you opt to transfer your pension pot anywhere else, as well as if you make the decision to take it as an unauthorised lump sum, and this will be deemed as an ‘unauthorised payment’. As a result, you will be required to pay tax on the transfer.
Go through with your decision to transfer your pension to another UK pension scheme and you may be required to pay a fee for the transfer to take place or make payments to the new scheme. There is also a chance that you will lose any right that you previously had to take your pension at a certain age, lose your fixed or enhanced protection, and lose your right to take a tax-free lump sum of over 25 per cent of your pension pot.
We’re ready to help you with your pensions transfer here at True Potential Investor, with our experts on hand to spread your investment across thousands of global holdings with the aim to maximise returns and reduce risk. Get started now — it only takes around ten minutes to give us the details we require.