The current financial climate has led to a great deal of uncertainty across the board, most notably in the area of pensions. As such, many people are planning to switch their pension schemes either due to redundancy or the pursuit for a better performing product/lower charges.
Whatever the reason may be it is vital that you seek professional advice. Simple Financial Solutions can offer useful guidance on pensions transfer, whether it is worth it, or indeed which product to transfer to.
Pensions Transfers – the do’s and don’ts
In addition to seeking the advice of a specialist, it is recommended that you:
- Request a transfer value analysis: This allows you to compare the benefits of your current pension with the alternatives. It also indicates how fast an alternative scheme will have to grow to match the benefits in your old pension.
- Look into your retirement options: If you are thinking of retiring early find out if the scheme you intend switching to will allow this.
- Assess your old/current scheme: It may well be better to stick with it.
Conversely, it is also recommended that you do not:
- Swap from an occupational pension to a private pension: If you and your employer are currently making contributions then this is a far better option than a private pension scheme.
- Transfer from a public sector pension scheme: Even if you have left the sector, this isn’t advisable as these schemes are guaranteed against inflation and you can pick it back up if you return.
- Transfer from a pseudo-public sector scheme: Like the public sector, these come with an unrivalled range of benefits.
- Swap if you are risk averse: Personal pensions are likely to go up and down whereas final salary schemes offer a degree of certainty.
- Change schemes if you have little to begin with: Due to transfer charges and commission you will be left with not much to move over in any case.
- Switch if retirement is on the horizon: If there is less than 10 years to go until you call it a day then, unless there is a distinct advantage to moving, it would be wiser to stay put for a secure payout.
What are the risks?
If you haven’t thought about transferring pensions properly, received poor advice (or none at all) then switching from one scheme to another could cost you thousands. For example, there may be exit penalties on your existing policy, you could lose valuable benefits or be hit with a market value reduction. Also, if switching from a final salary scheme to a personal pension you will be carrying a far greater investment risk, the transfer value you are offered may be reduced, you may not be entitled to your money back within the standard 30-day cancellation period and bonuses may be lost.