Could You Lose Money By Transferring Pensions To Another Provider?
Throughout your career, you may decide to pay into a pension pot through schemes set up by your employer. Nowadays you can be auto-enrolled to the scheme of their choosing from the day you start a new job. The benefit of this is that you don’t have to do much to ensure you’re financially contributing to your retirement.
At the same time, your employer will be making a percentage of the input themselves to give you the best chance at financial stability on retirement. The downfall is that you don’t get to decide where that money goes. This can quite often result in having multiple pension pots all over the place.
It can become confusing and incredibly difficult to keep track of. Transferring pensions to another provider is one way of consolidating your finances. It allows you to choose who you want to be in charge of the investments and makes it easier for you to withdraw them in the future.
Although it can help you avoid the challenge of hunting for all of your sources - there may be some disadvantages or reasons to leave your finances where they are. This article will discuss your options and what may happen if you decide to consolidate your pension.
Why Would I Consolidate?
Before you jump into anything, it is important to consider why you are transferring your pensions to another provider. Many people do so without proper research and may suffer significant financial loss as a result.
It’s important to remember that a lot of people do it, and when it’s for the right reasons, it can be a great way of enhancing your workplace or personal finance plans. There are plenty of reasons for doing so:
Change Of Employer
Simply put, when you start a new job, it’s unlikely that your new employer will be using the same workplace scheme as your previous one. With so many options available, businesses will tend to look at what is right for them as well as their people.
If this is the case, try to look into what this new scheme offers. They may have varied benefits and different interest rates. Proper research into the new scheme will allow you to make an informed decision as to whether it is beneficial for you to move your existing funds to this new provider.
However, if you believe you will get a better deal by leaving it be - you are under no obligation to consolidate your pots.
Becoming Self-Employed
If you have previously worked for a company or multiple employers but are now making the switch to self-employment, transferring your pensions to another provider could offer you the chance to invest in a personal, self-invested or stakeholder scheme.
These allow you to continue investing, even when you do not have an employer making contributions. They work in a similar way to workplace pensions, but many offer more flexibility on how you save. Although, unless you are very experienced in managing your own investments - it will be important to communicate with a trusted financial adviser. This way you can be sure you’re getting the most out of any scheme you choose.
Closure Of Your Current Scheme
Unfortunately, this doesn’t leave you with much choice in the matter. However, it is important you are receiving everything you’re entitled to and that the consolidation is being carried out properly. This can be more difficult if you have a defined benefit scheme and so it’s vital you know who to contact for advice and updates even once the scheme has closed.
Our services can help you understand your current circumstances and take into account your current investments. We are proud to offer expert advice and ongoing support so you can be confident you’re making all the right decisions.
More reasons people may want to make a consolidation are:
To reduce costs and fees associated with your previous scheme
You want more investment choice
You would prefer different withdrawal options to the ones your current scheme offers
You are moving abroad
You wish for less risk when investing your finances
You have found better performing schemes elsewhere
How Easy Is Transferring Pensions To Another Provider?
There is no wrong time to start considering consolidation. But, making the most of the available schemes now could greatly impact your retirement.
Regular reviews are widely encouraged as they provide you with a bigger picture. This makes it easier to keep on track with investment decisions and take advantage of developing benefits and interest rates.
Contact us today to run through your first review.
It can be fairly straightforward to consolidate investments. If you have all of the relevant paperwork and reliable contacts between providers - you just need to ensure that you know where everything is before you go ahead. For help in doing this, check out our latest resource.
Once you know where everything is, it is vital that you understand what type of investments you have.
Defined Contribution (DC)
This type of scheme will usually allow you to consolidate your pots to any new provider. Even moving from a workplace scheme to a personal pension is fairly easy here. They are tax-efficient ways of saving and the amount you have on retirement will depend on how much you have contributed over the years. As well as this, the general market will impact how well your investments have done and what your total income will be when you withdraw your funds.
Defined Benefit (DB)
A lot of the time, it can be the best option to leave your savings inside of a defined benefit scheme instead of moving to a defined contribution. The major appeal of this type is that they provide eligible people with guaranteed income for life on retirement. This will be based on the term you serve with that employer and your annual salary.
This puts the majority of the risk on the employer, rather than bearing the weight of saving and investment on the employee. The problem with transferring this type of pension though is that you will forfeit any benefits associated with it. This includes the guaranteed income.
While we will always suggest receiving advice before making such a decision, the Financial Conduct Authority actually requires you to do so if the value of your defined benefit pot is more than £30,000.
Check The Hidden Costs
Before signing any paperwork to go ahead with a transfer, it is important to check the other costs associated with the move. For example, exit fees catch many people off guard as they may not be advertised when you initially join a scheme. Things like this can make you realise how much you may have lost from moving your pension.
It tends to be older schemes that have this exit fee and the government has now brought in caps at 1% for those who are 55 or older. But in the past, we have seen individuals lose more than 10% of their total amount! Especially if your savings amount is low, this 1% or more may not be worth the consolidation.
Furthermore, checking the underlying costs of each provider could unearth some unattractive features of investing with them.
Annual Management Fee
You will usually incur an annual management fee that covers the cost of running and administering your scheme. Usually found in DC schemes, you will either have to pay a set amount as set out in your contract, or it will be deducted as a percentage of your investments. Look out for schemes where this fee is significantly lower than others.
Inactivity Charges
These often go unnoticed when you stop paying into a pot until you go to withdraw and find a chunk of funds missing. With this in mind, it could actually be a reason for transferring… However, don’t forget to compare this cost with that of the new fees associated with your new provider.
Underlying Fee
This is another one that can sneak past you with the annual management charge. This is the money that goes towards those actually managing the investments. If you don’t make a note of what this will cost you - it could stack up quickly where another scheme works it into their annual management cost.
Platform Fees
Similar to this, a platform fee may also crop up with a new provider. If you decide to transfer - some schemes may even charge you for the privilege of using them as a retirement saver. It is small costs like this that often go unnoticed unless you religiously check your contributions and output. However, they all add up to understanding how much you may have lost from transferring pensions to another provider.
Take Control Of Your Retirement With Informed Pensions
Saving early is the best advice we can give you. The sooner you start making those contributions and putting in the effort to save - the better your withdrawals will look when you stop working.
Aside from that, our team has been in the industry for years and there are still so many people out there that have no idea what their investments look like or even where they are. We can fix that.
So for a quick and easy review and some expert advice on transferring your pensions to another provider - get in touch. Understanding your investments is the first step to formulating a plan and getting the most out of your savings for the future.
READY TO START A CONVERSATION ABOUT BUILDING A SUCCESSFUL FINANCIAL FUTURE?
We’ll help you navigate through the complexities of today’s financial world. The choices available can often be bewildering, which is why we are here. Our goal is to work with you to build a successful financial future, where you can live a happy, secure and prosperous life. To find out more, please contact us.