Pension Transfers

How Do Pension Transfers Work? - Transferring from a Final Salary Pension - Transferring from a Final Salary Pension

Everyone's situation is different, so you won't necessarily benefit from a pension transfer just because other people you know are transferring their pensions to new schemes.

However, there are situations where it does make financial sense to transfer your pension to a new or different scheme - here are a few possible examples: 

  • Your existing company scheme is being wound up and you wish to undertake a pension transfer.
  • You have a personal pension that has high charges and you would like to transfer it to one that has lower charges.
  • You would like to add your existing personal pension to an occupational pension scheme to benefit from lower fees/employer contributions.  
  • Your current scheme's fund performance is poor and you wish to switch to a provider with a better performance tracke record.
  • Those with larger funds may wish to switch to the more dynamic Self Invested Persional Pension Plan (SIPP).

Back to start of page 

How Do Pension Transfers Work? 

There are strict legal rules about pension transfers. You don't need to understand them all, but you should know at least the basics if you are considering transferring your pension. 

The first thing you need to know is what type of pension you want to transfer from - there are 2 basic types. 

It's important to understand these because the transfer value of your pension is calculated differently for each type. 

  1. Final Salary pensions guarantee you a pension that is a fixed percentage of your final salary - i.e. the salary you had when you retired or left the company. Final salary pensions are also known as Defined Benefit Pensions because the benefit (pension) you will receive is fixed in advance - regardless of how much your contributions are worth. 
  1. Money Purchase Pensions do not guarantee any fixed pension. Your  contributions to the pension are invested and added together. When you retire, the total value of your contributions is calculated. This money is then used to purchase an annuity which gives you a guaranteed income for the rest of your life. Money purchase pensions are also known as Defined Contribution pensions - because your contributions are fixed but the benefit (pension) you will get when you retire is not.

Back to start of page 

Transferring from a Final Salary Pension 

If you are considering transferring from a final salary pension scheme, you need to make a written request to the administrators of your pension for a 'Statement of Entitlement'. 

Within three months, your pension administrators should then provide you with a transfer value for your pension.

This will normally be guaranteed for three months - the guarantee date will be shown on the document. 

This transfer value is not calculated based on your contributions to the scheme. Rather, it is an assessment of the amount of money that would need to be invested now to provide you with your "preserved pension" - ie your pension entitlement under the final salary scheme. 

If you decide to go ahead with the pension transfer you should aim to do so before the guarantee date to ensure that the transfer value is the same as in your statement of entitlement. 

Your pension scheme administrator is then required to complete the transfer within six months of your request. 

Back to start of page 

Transferring From a Money Purchase/Personal Pension 

If you are thinking about a pension transfer from a money purchase pension, you need to request a statement of transfer value from your current pension scheme administrators.

The transfer value of your money purchase pension will be calculated based on the current value of your fund. 

You need to remember that these are typically invested in stocks and shares, so the total value of your contributions can go up and down depending on market conditions. 

Often, the transfer value is calculated at the time of transfer and the statement you get in advance is only a snapshot of your pension value at that time. This means that when you transfer your pension, the final transfer value could be more or less than you were expecting. 

If you decide to proceed with the transfer, your adviser will need to make a written application to do so to your pension scheme administrators. The scheme administrators are then obliged to complete the transfer within six months. 

It is strongly recommended you get financial advice from a qualified independent financial advisor. If this is an area that interests you then call our team for further information.

Back to start of page