What Happens When I Transfer a Pension?

What does "transferring a pension" actually mean?

Imagine you have:

Pension A

with Provider A.

You decide to move it to:

Pension B

with Provider B.

Provider B becomes the:

receiving scheme.

Provider A is the:

transferring scheme.

The existing pension transfers money or pension rights to the receiving arrangement in accordance with the applicable transfer process.

Once completed, the old pension may be closed if the entire value has been transferred.

The money remains within the pension system where the transfer is an authorised pension-to-pension transfer.

You have not normally:

withdrawn the pension into your bank account

and then:

paid it back into another pension.

That distinction matters.

Is a pension transfer the same as withdrawing my pension?

No.

A pension-to-pension transfer and a pension withdrawal are fundamentally different things.

A transfer normally moves pension assets or rights from one registered pension scheme to another eligible pension arrangement.

A withdrawal means taking benefits from the pension for yourself.

Steve's observation

If you're transferring your pension and somebody's plan involves:

"We'll put the £100,000 into your current account first…"

I would be asking considerably more questions.

A proper pension transfer doesn't normally involve you personally receiving the money in the middle.

Do I have to open the new pension first?

Normally there needs to be an appropriate receiving pension capable of accepting the transfer.

If you're moving an old pension into an existing pension, the receiving provider needs to confirm that it will accept it.

If you're establishing a new pension, that arrangement will normally need to be set up before the transfer can complete.

Not every pension accepts every type of transfer.

So before closing or moving anything:

check the receiving scheme will actually accept it.

Who starts the pension transfer?

Often the receiving provider can initiate the process once you've provided the required information and authority.

You may need details such as:

• existing provider
• policy or plan number
• pension type
• approximate value
• and: personal information.

Providers may also need additional documentation or information depending on the pension.

Do not cancel the old pension yourself simply because you have started a transfer request.

Let the formal transfer process determine what happens to the existing arrangement.

What is a transfer value?

For a straightforward defined contribution pension, the transfer value will generally reflect the amount available to transfer from the existing arrangement, subject to the terms of the pension and any applicable adjustments or charges.

That is not necessarily identical to the value displayed on yesterday's app screen.

Investment values can change.

There may also be charges or other adjustments depending on the contract.

With a defined benefit pension, the concept is very different.

A Cash Equivalent Transfer Value — CETV represents a value offered in exchange for giving up specified pension rights under the scheme.

It should not be thought of as simply:

"my DB pension pot."

Because a DB pension isn't normally an individual investment pot in the same sense as a DC pension.

What happens to my investments?

This depends on the type of transfer.

One common method is a:

Cash transfer.

Your existing investments are sold.

The resulting cash is transferred to the receiving pension.

The money is then invested according to the arrangements in the new pension.

That creates an important practical issue.

For a period during the transfer, some or all of that money may not be invested in the same way it was before.

What does "out of the market" mean?

Suppose your pension investments are sold on Monday.

The cash then has to:

• settle,
• be transferred,
• reach the new provider
• and: be reinvested.

During some or all of that period, the transferred amount might not be exposed to investment markets in the same way as before.

That can work:

for you

or:

against you.

If markets fall while you're in cash, you might reinvest at lower prices.

If markets rise, you could miss some of that rise.

Nobody knows which will happen in advance.

Can my investments be transferred without selling them?

Sometimes.

You may hear this called:

an in-specie transfer

or:

re-registration.

Broadly, this involves transferring eligible investments themselves rather than selling them first and transferring only cash.

Whether this is available depends on:

• the pension providers
• the investment
• the receiving scheme
• and: the transfer arrangements.

An in-specie transfer can potentially reduce the period during which particular assets are not invested, but it may take longer or involve different administrative requirements.

And the receiving provider may not offer the same investment.

So don't assume:

"I'll just move my existing funds across."

Ask whether that is actually possible.

Will my pension lose money during the transfer?

It could change in value.

If your pension remains invested before assets are sold, market movements can affect the eventual transfer value.

If assets are sold and transferred as cash, market movements while you are out of those investments can affect what happens when you reinvest.

There can also potentially be:

• transaction costs
• transfer charges
• or: other contractual adjustments.

So it would be misleading to assume the number at the beginning of the process must exactly equal the value invested at the end.

Is transferring a pension taxable?

A legitimate pension-to-pension transfer between appropriate registered pension arrangements will not normally be treated in the same way as withdrawing taxable pension income personally.

But:

not every movement of pension money qualifies as an authorised transfer.

And overseas transfers in particular can involve additional rules and potential tax consequences.

That's why the process should be completed:

scheme to scheme

rather than attempting to withdraw the pension personally and move the money yourself.

This guide deals with ordinary UK pension transfers rather than overseas pension transfers.

What happens to my tax-free cash entitlement?

Potentially nothing.

Potentially something very important.

Most straightforward modern DC pensions will not contain unusual protected tax-free cash rights.

But some older pension arrangements can.

As we covered in:

Does My Pension Have Valuable Guarantees or Benefits?

some pensions can contain scheme-specific protected rights.

The transfer rules around those protections can be technical.

So before transferring, establish:

what tax-free cash entitlement exists now

and:

what would apply after the transfer.

Do not assume they are automatically identical.

What happens to a protected pension age?

Again:

check before transferring.

Different protected pension age regimes operate under different rules.

Depending on the type of protection and how the transfer is carried out, a protected pension age may potentially:

• continue
• change in how it applies
• or: be lost.

That can have a major impact on somebody planning to access a pension before the normal minimum pension age that would otherwise apply.

What happens to guaranteed benefits?

This is potentially one of the most important consequences of a transfer.

If your existing pension contains:

• a guaranteed annuity rate
• safeguarded benefits
• Guaranteed Minimum Pension rights
• defined benefit promises
• or: other valuable contractual guarantees,

the transfer may involve giving up some or all of those rights.

They do not automatically recreate themselves inside the new pension.

That is why:

PP-009 — Does My Pension Have Valuable Guarantees or Benefits?

comes before the transfer section.

Know what is in the old pension before deciding whether to leave it.

What happens with a defined benefit pension?

A defined benefit transfer is fundamentally different from moving an ordinary DC pension.

A DB pension promises benefits calculated under its scheme rules.

If those benefits are transferred to a DC arrangement, the member is normally giving up those promised benefits in exchange for a transfer value.

That means investment and longevity risk that previously sat differently within the DB arrangement can move substantially towards the individual.

This is a specialist area.

Where defined benefit or other safeguarded benefits above the applicable statutory threshold are being considered for transfer, regulated pension-transfer advice requirements can apply.

Do not treat:

"moving my final salary pension"

as though it were the same administrative decision as:

"moving an old £15,000 DC workplace pot."

It isn't.

Will my employer keep contributing after I transfer?

Don't assume so.

If you're transferring a current workplace pension, the employer's future contributions may still need to be paid into its chosen workplace scheme.

Moving an existing balance somewhere else does not automatically redirect future employer contributions.

Before transferring an active workplace pension, check:

• whether transfers out are permitted while remaining an active member
• and: what happens to future employer and employee contributions.

You don't want to simplify yesterday's pension and accidentally complicate tomorrow's contributions.

What happens to my beneficiary nomination?

Do not assume the receiving pension automatically inherits every instruction from the old pension.

After a transfer, check your:

beneficiary nomination

or:

expression of wish

with the receiving provider where applicable.

Your family circumstances may also have changed since you completed the original nomination.

A transfer is therefore a sensible prompt to review the administrative information attached to the pension.

Why do providers carry out transfer checks?

Pension providers have responsibilities around transfers and pension scams.

That can mean a transfer isn't processed immediately simply because a member has requested it.

Depending on the circumstances, checks may be carried out relating to:

• the receiving scheme
• the transfer
• the investments
• or: possible scam warning signs.

In some circumstances additional information or guidance may be required before the transfer proceeds.

This can feel frustrating.

But pension scams can destroy savings that took decades to accumulate.

Steve's observation

If a pension provider asks an annoying extra question before sending £200,000 somewhere new, that isn't automatically bureaucracy gone mad.

Sometimes:

"Where exactly is this money going?"

is a very sensible question.

What happens when the money reaches the new pension?

Don't assume:

money arrived = job finished.

Check what happens next.

The transferred amount may:

• be invested automatically
• or: remain temporarily in cash pending investment instructions,

depending on the receiving arrangement.

Check:

• Has the transfer arrived?
• Has the full expected amount arrived?
• Is it invested?
• What is it invested in?
• Are the charges what I expected?
• Is my beneficiary information correct?
• Are any agreed retirement details correct?

A pension transfer isn't complete from your perspective until you understand what you now own.

A Simple Pension Transfer Journey

1. Understand the old pension — What type is it? What does it contain?
2. Understand the proposed new pension — What will replace it?
3. Compare them — Charges. Investments. Risk. Benefits. Guarantees. Retirement options.
4. Check what could be lost — Particularly guarantees and protected rights.
5. Request the transfer — Using the formal provider/scheme process.
6. Existing investments are dealt with — Cash transfer or, where available, an in-specie transfer.
7. Transfer completes — Money/assets arrive in the receiving pension.
8. Check the new pension — Make sure the money has arrived and is invested as expected.

What Should I Do Next?

Now you know what happens during a pension transfer.

But that still doesn't answer:

"Should I do it?"

Before signing a transfer instruction, the important job is to compare what you currently own with what will replace it.

That means checking:

• charges
• investments
• risk
• guarantees
• protected benefits
• retirement options
• death benefits
• transfer costs
• and: what happens during the transfer itself.

Only then can the potential advantages be weighed against what might be lost.

A pension transfer can look incredibly simple on an app:

Transfer pension. Enter policy number. Press continue.

But the button is the easy bit.

The important work happens before you press it.

Steve's observation

Moving a pension is sometimes described as though we're changing broadband providers.

We're not.

You could be changing the investments, charges, contractual benefits and retirement options attached to money you've spent thirty years building.

So I'm considerably less interested in:

"How quickly can we move it?"

than:

"Have we checked what we're moving away from?"

Understand first.

Compare second.

Transfer last.

Thinking about transferring an old pension but don't really know what happens once you press the button? Start by understanding both pensions — the one you're leaving and the one you're moving to. If you'd like help understanding the differences and what needs checking before a transfer is considered, speak to Open Door Wealth.