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Things to think about
Before you transfer pension benefits, there are a number of different things you should think about.
The decision about whether or not to transfer benefits is not always easy. In some cases you may want to seek advice from an independent financial adviser. Here are some of the things that you may want to consider.
Transfers from a defined benefits pension scheme
When you transfer benefits from a defined benefits pension scheme, you are not transferring the actual benefits but a cash amount, the cash equivalent transfer value (CETV). When the CETV is transferred, you give up all of your benefits in the old scheme.
If you transfer to a new defined benefits scheme, the CETV is used to buy pension benefits in the scheme. These are unlikely to be the same as the benefits you had in the old scheme and you will be subject to the new scheme’s rules. It is rare that defined benefit schemes will accept a transfer into it except in the public sector.
If you transfer to a defined contribution pension scheme, the CETV is added to your pension pot and is invested in the funds that you select. Its value when you start to draw retirement benefits will depend on the amount of the CETV, how long it has been invested, investment growth over this period and the level of any charges.
It’s worth remembering that defined benefits pension schemes give a guaranteed level of pension income, whereas the benefits under a defined contribution pension scheme depend on investment performance during the time that the money is invested. If you transfer from a defined benefit scheme to a defined contribution scheme, the retirement benefits you receive may be higher or lower than the benefits you would have received if you had stayed in the defined benefit scheme. You should certainly consider seeking advice for these types of transfer.
As of April 2015, it is a requirement to get advice before transferring from a defined benefit to a defined contribution scheme. In addition, transfers from unfunded public sector schemes are no longer be available.
Transferring from a defined contribution pension scheme
If you are transferring from a defined contribution pension scheme, you will usually be transferring to another defined contribution scheme. The amount available to transfer to the new scheme is usually based on the value of your pension pot, although there may be charges for transferring. When the transfer is completed, the value of your pension pot in your new scheme will be its value before the transfer plus the amount transferred.
You will need to choose how to invest the money transferred into the new scheme, so before transferring, it’s worth considering where you would like to invest and whether your choices are available in the new scheme. It’s unlikely that the new scheme will offer the same investment options as your old scheme. You should also check the level of charges that may be payable.
If you are able to transfer to a defined benefits pension scheme, the new scheme’s administrator will be able to tell you the additional benefits the scheme will give you in return for the transfer value.
If you have questions around the transfer process, please talk to us, but we can’t give you advice about whether you should transfer or not, or where you should invest.
Where can I find out more?
If you need more information, please contact us. A pension specialist from our team will be happy to help with whatever pensions-related question you have. Our help is always free.