I am currently considering my retirement options and have a question regarding transferring my pension from a workplace scheme to a SIPP (self-invested personal pension).

I’m wondering if it’s possible to make such a transfer and what considerations or steps might be involved in the process.

Diego

Rachel Vahey, 

AJ Bell Head of Public Policy, says:

Over the last 11 years, more than 11 million people have been automatically enrolled into their workplace pension. Today, every time someone joins a new employer, they also join their pension scheme if they are aged 22 or over and earn over £10,000 a year.

The government estimates the average person has 10 jobs in a lifetime, so that could mean building up 10 different pensions. And that’s where it gets complicated: 10 different pension schemes to keep track of, probably all with different providers..

It’s no surprise many people decide to combine their older pension plans into one. Doing so can offer many advantages. It makes it easier to manage pension savings if they are all in one place, and to work out if your pension is on track to get the income you want in later life.

There’s a lot less admin and paperwork such as statements to plough through, and only one log in to remember. Transferring to a SIPP could offer greater investment choice than is available in many workplace pensions. And finally, combining pensions may mean potentially lower charges.

TRACKING DOWN OLD PENSIONS

The first step to combining pensions is to track them down. And that probably means digging out log-in details and paperwork. One idea is to go through work history and match the pension to the job. If there are any missing, then people can get in touch with old employers to check if they paid into a pension. If going back is difficult – perhaps the employer no longer exists – then there is a free state-backed pension tracing service available.

Before people rush in to combine pensions there are a few checks to do beforehand. Some older style of pension plans will apply a penalty if pension savers move their money away before a set date. This could be a with profits pension or an exit penalty.

Others offer valuable benefits such as a guaranteed annuity rate – a special deal on prices if the individual chooses to buy an annuity with the fund.

For both these situations it doesn’t mean that people cannot transfer their pensions. But they need to be aware of the consequences of doing so and consider whether that is the outcome they want.

It’s almost always best to leave a pension where it is if the individual’s employer is also currently paying into it. There’s a strong possibility the employer contributions would stop if it was transferred, and obviously that should be avoided. Another situation where caution is needed is if someone has a defined benefit pension scheme. Most people have to get regulated financial advice before they can transfer these valuable benefits, and the FCA believes it’s usually in people’s best interests not to transfer.

A POTENTIAL SHORT CUT

Once an individual has established which of their pension schemes they want to transfer, then all they have to do is give the details to their pension scheme.

However, to make life even easier, some providers now offer a pension finder tool. This cuts out some hard work. All individuals have to do is give their provider details of their past employments, and the provider will track down the old pension plans. They will then check and let the individual know if there are any reasons they may want to pause before transferring – for example, if there are any exit penalties.

If you need a hand finding old pensions, AJ Bell has a free Pension Finder tool that can help. 

Transferring to a different pension scheme can offer many advantages to pension savers, such as lower charges and better investment options. And having a single combined pension can help people manage their pension schemes easier, making it simpler for them to plan for their future.

DISCLAIMER: Financial services firm AJ Bell referenced in this article owns Shares. The author (Rachel Vahey) and editor (Tom Sieber) own shares in AJ Bell.

DO YOU HAVE A QUESTION ON RETIREMENT ISSUES?

Send an email to askrachel@ajbell.co.uk with the words ‘Retirement question’ in the subject line. We’ll do our best to respond in a future edition of Shares.

Please note, we only provide information and we do not provide financial advice. If you’re unsure please consult a suitably qualified financial adviser. We cannot comment on individual investment portfolios.

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