Pension Transfers - 10 Key Points To Consider
Pension transfers can seem both simple yet complex at the same time. Without making what seems a contradictory statement to begin with, you’ll see below in this four page article though its actually pretty accurate. Yes you can gain major benefits from transferring your pension in certain circumstances, but there are also major pitfalls which can prove detrimental to the long-term health of your retirement income.
Now let’s try and clarify the whole issue of what pension transfers are, what to look for in a good one, how to avoid a bad one or to ascertain whether you even need one in the first place - and to make understanding it as easy as ABC. Well that’s the quest of course, now let’s see if I can deliver!
So why would I want a Pension Transfer William?
Good question - here’s some background for you which may help.
Let me start with the death of the concept of a job for life - the old days of having one or two employers throughout your entire career have gone forever. As such steadily paying into a pension plan held by one employer over a lifetime of employment in order to build a healthy retirement pot is therefore redundant too. In the past the main bulk of pensions were Salary-Related Schemes, but these are rare now.
If right to do so, you can generally transfer salary-related pension schemes to the following…
- a pension scheme run by your new employer
- a personal or stakeholder pension
- a buy-out policy/section 32/contract
Of course you can leave your old scheme(s) where they are as long as you have belonged to it for two years or more and the benefits will remain in place for you until they are paid to you when you retire.
This is known as a ‘deferred pension’.
The high mobility of today’s modern workforce means that many of us leave behind a trail of old pension schemes held over by our previous employers as we move from job to job. So the first reason for transferring a pension is to simply tie up all these loose ends and bits and pieces of old company pension schemes by consolidating them into one easy to manage profitable central plan. So the theory goes anyway. Sounds simple doesn’t it… well yes, sort of.
By consolidating various past schemes like this into one, you’d be sticking “all your eggs into one pension basket” so to speak. But perhaps you don’t want all of your eggs in one basket after all? You may hold a secret fear that perhaps one day you could lose the lot due to an unscrupulous raider like Robert Maxwell who after his death, it transpired that he’d been plundering staff pension funds on a massive scale to support his business interests in The Mirror and Maxwell Communications.
By holding a number of pensions your risk is spread by not consolidating in one scheme alone. But then on the other hand your returns from scattered, multiple ‘mini’ sized pensions may hardly amount to a bean held separately like this. Can you see what I meant by transfers being both simple and yet complex at the same time, just from this one point alone?
Making a decision on this type of consolidation is wisest with professional financial advice. Your adviser would help you look at all the pertinent issues - like how profitable your current pensions are, how expensive the charging structures are (older pensions often had high charges) combined with your own personal attitude to risk i.e. are you an “eggs all in one basket” type person or a risk averse ” spread it all around” type saver? These are the types of issues best discussed face to face with a pensions specialist.
Please continue reading this article on page two… >>>