There are three main reasons why people consider a transfer of their pension funds to another scheme:
- They are moving employer and have the chance to transfer their contributions to the new employer’s scheme.
- They have several different pension pots and want to put them all in one place.
- Their employer is changing the pension scheme from defined benefit to defined contribution scheme and offers existing members an incentive to join a new scheme.
There are three main reasons why people consider a transfer of their pension funds to another scheme:
- They are moving employer and have the chance to transfer their contributions to the new employer’s scheme.
- They have several different pension pots and want to put them all in one place.
- Their employer is changing the pension scheme from defined benefit to defined contribution scheme and offers existing members an incentive to join a new scheme.
It is not always possible to transfer funds so check what the scheme rules say. When it is, the current provider will calculate a Cash Equivalent Transfer Value (CETV) that can be used to invest in the new scheme.
There may be benefits to transferring a pension. It’s easier to manage one fund, the new scheme may seem to offer better returns and there are worries about companies being declared insolvent and the implications for the pension fund.
However there are also many potential risks in a transfer.
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. Remember that most public sector schemes allow you to remain in the scheme when moving to a new job/employer within the sector.
Moving funds from one defined contribution scheme to another may be beneficial but there are four main areas to investigate before making a decision.
- Additional benefits. The current scheme may offer benefits and additions that are not available under the new scheme.
- Costs and charges. The charges and costs under the new scheme may be much higher.
- Penalties. There may be a financial penalty for transferring your funds to another scheme.
- Risk. The investment portfolio may offer higher returns but involve riskier investments.
Transferring funds is a complex subject. You can get advice from your current scheme or union pension trustee but it may be worth paying for independent advice should there appear to be real benefits from a transfer.