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Should I Transfer My Old Workplace Pension?

Changing Jobs 6 min readGuide 13
Should I Transfer My Old Workplace Pension?

Transferring an old workplace pension can simplify your finances and potentially reduce charges, but it is not always the right decision. This guide explains the key factors to consider before transferring.

Quick answer

Transferring an old workplace pension can make sense if it simplifies your finances, reduces charges or gives you better investment options. But you should always check for valuable benefits, such as guaranteed annuity rates, before transferring, as these are lost permanently. Transferring a defined benefit pension worth more than £30,000 requires regulated financial advice by law.

When transferring makes sense

There are several situations where transferring an old workplace pension might be beneficial:

  • Your old scheme has high charges that are eroding your pot
  • The investment options in your old scheme are limited or unsuitable
  • You want to consolidate multiple pensions into one for simplicity
  • Your new employer's scheme has better terms than your old one
  • You want more control over your investments through a SIPP

When to be cautious

Transferring is not always the right decision. Be cautious if:

  • Your old scheme has a guaranteed annuity rate (GAR), this is lost permanently on transfer
  • Your old scheme has enhanced death benefits or other valuable guarantees
  • There are significant exit fees that would reduce the transfer value
  • The new scheme has higher charges or worse investment options
  • You are transferring a defined benefit pension, this requires regulated advice

Guaranteed annuity rates

A guaranteed annuity rate (GAR) is one of the most valuable benefits that can exist in an older pension scheme. It guarantees that when you come to take your pension, you will receive an annuity rate that is higher than the market rate at the time, sometimes significantly higher.

GARs are most commonly found in personal pensions and retirement annuity contracts taken out in the 1970s, 1980s and 1990s. If your old pension has a GAR, transferring it means giving up this guarantee permanently. The value of a GAR can be substantial, in some cases, worth tens of thousands of pounds more than the transfer value suggests.

Always check whether your old pension has a GAR before initiating a transfer. This information should be in your pension documentation or can be confirmed by contacting the provider.

Steve

Steve's observation

Guaranteed annuity rates are the hidden gem of older pension schemes. I have seen clients with GARs that effectively double the income they would receive compared to the current market rate. Transferring a pension with a GAR without understanding its value is one of the most costly mistakes I see.

Before you transfer any old pension, ask the provider directly: "Does this pension have a guaranteed annuity rate or any other guaranteed benefits?" If the answer is yes, get a proper valuation of that benefit before making any decision. In many cases, the right answer is to keep the pension exactly where it is.

Defined benefit transfers

Transferring a defined benefit pension is a fundamentally different decision from transferring a defined contribution pension. You are giving up a guaranteed income for life in exchange for a cash transfer value. This is an irreversible decision with significant long-term consequences.

If your defined benefit pension is worth more than £30,000, you are legally required to take regulated financial advice from a pension transfer specialist before proceeding. In the vast majority of cases, the advice will be to keep the defined benefit pension, the guaranteed income it provides is extremely valuable and very difficult to replicate.

How to transfer

To transfer a defined contribution pension, contact your new scheme or personal pension provider and ask them to initiate the transfer. They will request a transfer value from your old provider and handle the process. You will need to provide details of your old scheme and sign a transfer request form.

The transfer typically takes two to six weeks. During this time, your money is usually out of the market, which carries some investment risk. Some providers offer an in-specie transfer (transferring the investments directly rather than selling and reinvesting), which avoids this risk.

Pension scams

Pension scams are a serious and growing problem. Fraudsters target pension savers with offers of high returns, free pension reviews or early access to pension funds. If you are approached out of the blue about your pension, by phone, email or social media, be extremely cautious.

Legitimate pension providers and advisers will never cold-call you about your pension. If you are unsure whether a contact is genuine, check the FCA register (fca.org.uk/register) before proceeding. Never transfer your pension to a scheme you have not thoroughly researched.

Pause for thought

  • Do you have any old workplace pensions that you are considering transferring?
  • Have you checked whether any of your old pensions have guaranteed annuity rates or other valuable benefits?
  • Are there exit fees on any of your old pensions that would reduce the transfer value?
  • If you are considering transferring a defined benefit pension, have you taken regulated financial advice?

Coaching point

Before initiating any pension transfer, write down the reasons you want to transfer and the potential benefits. Then check for any valuable benefits in the old scheme that you would lose. If the benefits of transferring clearly outweigh the costs and risks, it may be the right decision. If you are unsure, take advice.

Key terms

Pension transferMoving the value of your pension from one scheme to another.
Guaranteed annuity rate (GAR)A valuable benefit in some older pension schemes guaranteeing a higher-than-market annuity rate at retirement. Lost permanently on transfer.
Transfer valueThe cash equivalent value of your pension benefits, used to calculate how much will be transferred to the new scheme.
Exit feeA charge applied when you transfer your pension. Capped at 1% for pensions set up after April 2017.
SIPPSelf-Invested Personal Pension, a type of personal pension that offers a wider range of investment options than a standard workplace pension.
ConsolidationCombining multiple pension pots into a single arrangement to simplify management and potentially reduce charges.

Frequently asked questions

What to do next

If you are considering transferring an old pension, start by checking for any guaranteed benefits and exit fees. If you have a defined benefit pension worth more than £30,000, take regulated financial advice before proceeding.

Guide 14 explains how to trace lost pensions, useful if you have old pensions you have lost track of.

This guide provides general information only and does not constitute personal financial, pension, investment or tax advice. Transferring a defined benefit pension worth more than £30,000 requires regulated financial advice by law. Pension transfer decisions can be complex and irreversible. Appropriate regulated financial advice should be considered before transferring or consolidating pensions.
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