What Should I Check Before Transferring a Pension?

Check 1 — What type of pension is it?

This comes first.

Do not transfer something until you can answer:

"What exactly is this pension?"

Is it:

• a straightforward defined contribution pension?
• a workplace pension?
• a personal pension?
• a stakeholder pension?
• a SIPP?
• a retirement annuity contract?
• a Section 32 policy?
• or: a defined benefit/final salary pension?

The label matters because different pensions can contain completely different benefits and transfer consequences.

We covered identifying pension types in:

What Type of Pension Do I Have?

Check 2 — What is it worth?

For a normal defined contribution pension, find:

the current fund value

and:

the current transfer value, where separately quoted.

They may not always be identical.

Investment values change.

There may also potentially be contractual adjustments or charges.

For a defined benefit pension, a Cash Equivalent Transfer Value is a very different concept.

It represents the amount being offered in exchange for surrendering specified scheme benefits.

It is not simply:

"my DB pension pot."

That distinction is important.

Check 3 — What am I paying now?

Write down your existing pension charges.

That may include:

• provider or administration charges
• platform charges
• fund charges
• transaction costs
• advice charges where applicable
• or: other policy charges.

We looked at this in:

How Much Am I Paying in Pension Charges?

Do not simply write:

"Old pension = 0.7%."

Find out what that figure actually includes.

Check 4 — What will the new pension cost?

Now do exactly the same exercise for the proposed receiving pension.

Then compare like with like.

If one figure includes:

platform + fund

and another only includes:

platform,

the comparison is meaningless.

Also check whether there are:

• fixed fees
• dealing charges
• fund-switching costs
• or: adviser charges

that differ between the arrangements.

Steve's observation

Charges are beautifully dangerous because they come with percentages.

Percentages look factual.

So people trust them.

But:

0.5% versus 0.8%

doesn't tell us much if one includes everything and the other doesn't.

Check 5 — Are there any transfer or exit charges?

Ask the existing provider directly:

"Is there any charge, penalty or adjustment if I transfer this pension now?"

Some pensions may have exit or transfer charges or other contractual adjustments.

Get the answer in writing where possible.

MoneyHelper confirms that some pension arrangements can levy transfer or exit fees.

Do not discover the cost after you've already decided to leave.

Check 6 — What is my pension invested in now?

Before comparing the new pension, understand the old one.

Find the:

• fund names
• asset allocation
• investment objective
• risk level
• and: any lifestyling or automatic de-risking strategy.

We covered this in:

What Is My Pension Invested In?

You aren't simply moving:

£100,000.

You're moving £100,000 that currently has an investment strategy attached to it.

Check 7 — What would it be invested in afterwards?

This is just as important.

After the transfer:

where will the money actually go?

MoneyHelper notes that following a transfer into another defined contribution pension, transferred money will often go into the receiving scheme's default fund unless a different investment has been selected.

So don't assume:

transfer complete = investment decision complete.

Ask:

• What fund will receive the money?
• What does it invest in?
• What risk does it take?
• Does it use lifestyling?
• What retirement date is being used?

And importantly:

is that strategy appropriate to the job you're expecting the pension to do?

Check 8 — Am I changing the amount of investment risk?

This often gets missed.

If Pension A is invested cautiously and Pension B is invested aggressively, transferring from one to the other changes more than the provider.

Likewise, transferring into a very cautious arrangement can reduce exposure to market falls but could also increase the risk that long-term returns fail to keep pace with inflation or the objective.

There is no universally correct risk level.

We covered the principles in:

How Much Risk Am I Taking With My Pension?

The key question is:

"Am I changing the risk — and if so, do I understand why?"

Check 9 — Does the existing pension have guarantees?

This can be the most valuable part of the entire exercise.

Ask specifically about:

• Guaranteed Annuity Rates
• guaranteed income
• guaranteed investment benefits
• with-profits guarantees
• Guaranteed Minimum Pension rights
• or: other contractual guarantees.

MoneyHelper warns that pension schemes can contain guarantees or bonuses that may not be available from a replacement provider and could be lost by transferring.

We covered these in:

Does My Pension Have Valuable Guarantees or Benefits?

Do not assume the guarantee will move.

Check 10 — Do I have safeguarded benefits?

This deserves its own question.

Safeguarded benefits broadly involve certain promises or guarantees relating to secure pension income.

Defined benefit pensions are the obvious example.

Some defined contribution arrangements can also contain safeguarded benefits, such as particular guaranteed annuity rates.

Safeguarded benefits require particular care because specific advice requirements can apply when they are transferred.

If your provider uses the phrase:

"safeguarded benefits,"

stop treating the pension like an ordinary DC transfer.

Find out exactly what those benefits are.

Check 11 — Do I have protected tax-free cash?

Most people taking pension benefits are subject to the standard rules on tax-free lump sums and applicable allowances.

But certain older pension arrangements can contain protected rights to tax-free cash exceeding what would otherwise be available.

MoneyHelper specifically warns consumers to check for protected tax-free cash before transferring because protections may potentially be lost.

Ask:

Do I have scheme-specific tax-free cash protection?

And if the answer is yes:

What happens to it if I transfer?

Don't rely on assumption.

Check 12 — Do I have a protected pension age?

Some pension arrangements can contain a protected right to access benefits earlier than the normal minimum pension age that would otherwise apply.

Again, transfer rules can affect that protection.

Different protection regimes operate differently.

So if your scheme confirms that you have a protected pension age:

get the transfer consequences confirmed before proceeding.

That protection could materially affect your retirement plans.

Check 13 — What death benefits do I have?

Pension planning isn't only about what happens while you're alive.

Check:

what happens if you die before retirement

and:

what happens if you die after benefits start.

Depending on the pension, there might be:

• lump-sum benefits
• spouse's pensions
• civil partner benefits
• dependant benefits
• guaranteed payment periods
• or: other scheme-specific rights.

Now compare those with the receiving pension.

Don't accidentally improve:

your pension

while making things worse for:

your family.

Check 14 — What retirement options do I have now?

Does your existing pension provide access to the retirement options you expect to need?

Depending on the pension, these might include:

• taking tax-free cash
• flexible withdrawals
• drawdown
• buying an annuity
• or: taking the pension in another permitted form.

Older pensions can sometimes offer fewer modern flexible-access options.

That might be relevant.

But flexibility isn't automatically more valuable than an existing guarantee.

Compare them properly.

Check 15 — What retirement options will the new pension provide?

Now examine the proposed receiving arrangement.

Does it actually give you:

something useful?

A transfer should not happen simply because the new pension has:

more options.

Ask whether those options are relevant to your actual retirement plans.

There is little benefit in paying for 2,000 investment choices and advanced drawdown functionality if none of it is something you intend to use.

Check 16 — What happens while the pension is transferring?

As we explained in:

What Happens When I Transfer a Pension?

investments may potentially need to be sold.

That can create a period where some or all of the transferred amount isn't invested in the same way as before.

Ask:

• Will the transfer be cash or in specie?
• Will my investments be sold?
• When will they be sold?
• What happens when the money arrives?
• Will it automatically be invested?

You cannot know whether market movements during the transfer will help or hurt you.

So this isn't about trying to find the perfect transfer day.

It is about understanding the risk.

Check 17 — Is my current employer paying into this pension?

If the pension is your current workplace scheme:

stop and check.

Your employer may be contributing to it.

Transferring your existing fund does not necessarily mean future contributions can simply be redirected to whichever pension you choose.

Check:

• whether transfers are permitted while you remain an active member
• and: what happens to future employer contributions.

Employer contributions can be extremely valuable.

Don't accidentally disrupt them in pursuit of administrative tidiness.

Check 18 — Is the receiving pension legitimate?

This should be obvious.

Unfortunately, pension scams exist precisely because people are persuaded that unusual arrangements are:

"exclusive"

"special"

or:

"too good to miss."

MoneyHelper highlights warning signs including unsolicited approaches, pressure to act quickly, free pension reviews and unusually attractive investment claims.

Before transferring, check the people and firms involved.

If regulated financial advice is being provided, check that the firm is authorised for the relevant activity.

Never rely on a logo or professional-looking website alone.

Check 19 — Why am I being asked to transfer?

This is my favourite question.

Because it forces us to identify the actual objective.

Is the reason:

• lower charges?
• easier administration?
• better-suited investments?
• different retirement options?
• ongoing advice?
• consolidation?
• or simply: "Someone told me I should."

Check 20 — What happens if I do nothing?

This one gets forgotten.

Your choices are not:

transfer to A

or:

transfer to B.

There is often a third choice:

keep the existing pension.

Ask:

• What happens if I leave it exactly where it is?
• What will it cost?
• Where will it remain invested?
• What guarantees remain?
• What retirement options remain?

Sometimes doing nothing carries disadvantages.

Sometimes it is entirely sensible.

But it belongs in the comparison.

Check 21 — Is the decision reversible?

Do not assume so.

Once a pension has transferred and the old arrangement has closed, guarantees or protected rights surrendered through that transfer may not be recoverable.

A pension-transfer decision therefore deserves more care than:

"I'll move it and see how I get on."

You may not have an easy route back.

What about pension-transfer advice?

Certain transfers involving safeguarded benefits carry specific regulatory requirements.

If your existing pension contains:

defined benefit

or:

other safeguarded benefits,

find out whether regulated pension-transfer advice is required before the transfer can proceed.

MoneyHelper notes that where certain guaranteed benefits are worth more than £30,000, paid financial advice may be legally required before transfer.

That threshold should never be interpreted as:

"below £30,000 doesn't matter."

A valuable benefit remains valuable regardless of whether a particular statutory advice requirement applies.

The Open Door Wealth Pension Transfer Checklist

Before agreeing to a transfer, you should be able to answer:

• What pension type do I have?
• What is its current value or benefit?
• What is its transfer value?
• What charges am I paying?
• Are there exit costs?
• What is it invested in?
• What risk am I taking?
• Are there guarantees?
• Are there safeguarded benefits?
• Is there protected tax-free cash?
• Is there a protected pension age?
• What death benefits exist?
• What retirement options exist?
• What does the new pension cost?
• What will the new pension invest in?
• What risk will I take afterwards?
• What new retirement options will I receive?
• What will happen during the transfer?
• Could employer contributions be affected?
• Is the receiving scheme legitimate?
• What exactly do I gain?
• What exactly do I lose?
• and: "What happens if I simply leave the pension where it is?"

If several of those answers are:

"I don't know,"

that isn't a disaster.

It just means:

you're not ready to transfer yet.

What Should I Do Next?

Before transferring:

create two columns.

On the left:

WHAT I HAVE NOW

On the right:

WHAT I WILL HAVE AFTERWARDS

Then compare everything.

• Charges.
• Investments.
• Risk.
• Guarantees.
• Protections.
• Death benefits.
• Retirement options.
• Service.
• Administration.

Only then add the final two lines:

WHAT DO I GAIN?

and:

WHAT DO I LOSE?

That's the pension-transfer decision in its simplest useful form.

There are perfectly good reasons why pensions get transferred.

But: "It looks easier" isn't enough on its own.

Neither is: "The new one is cheaper."

Neither is: "This provider has a nicer app."

And definitely not: "Someone rang me and said my pension wasn't performing properly."

Steve's observation

If you've spent thirty years building a pension, spending a little time checking it before moving it seems fairly reasonable.

You wouldn't sell your house because somebody said:

"I've got another one with cheaper council tax."

You'd probably want to see the bloody house first.

Same principle.

Understand what you're leaving.

Understand what you're buying.

Then decide.

Thinking about transferring or consolidating a pension? Before signing anything, build a proper comparison of what you own, what you could lose and what you would receive instead. If you'd like help understanding those differences before making a decision, speak to Open Door Wealth.