Even if you did everything you could do get the best possible deal in your pension, it is still possible that you wake up one day and realize either of these two things: one, you are not satisfied with your current pension or that there are so many better options out there that you want to avail.
Fortunately, there is this concept we call pension transfers that allow you to transfer the value of your contributions from one pension scheme to another. This means that you do not need to be stuck forever in the current pension that you have. By doing so, you will end your membership on your original pension scheme and start a new one with another pension provider.
Not being satisfied with your present pension scheme is not the only reason why people engage in pension transfer. It is also ideal to transfer your pension in situations wherein your company scheme is in jeopardy or your personal pension has high fees and you would want to switch to a low-fee plan. It could also be possible that you want to add your existing personal pension to the pension scheme in your company and benefit from lower fees or lower employer contributions.
To understand further the process of UK pension transfer, it is important to know the basic types of pensions since the transfer value of your pension is computed differently for each type. Basically, there are two types of pension, as outlined in this article.
1. Final salary pension schemes – this is the type of pension scheme also known as Defined Benefit pension, wherein the amount of your pension will be a percentage of your final salary or how much you were earning when you resigned or retired from the company. Here, the benefit you will receive is pre-determined and will not depend on how much your contributions were.
2. Money purchase pension schemes – in this scheme, the contributions you make to your pension are invested and added together so that when you retire the total value of your contributions plus the fruits of the investment are used to purchase an annuity. This annuity gives you a guaranteed income as long as you live. This pension scheme is also called as Defined Contribution pension because the contributions are fixed but the amount of benefit is not since it will have to depend on the total value of your contribution.
To give you heads-up information regarding this process, here are some essential reminders to keep in mind:
Know that transfer of pension is not always the answer
Every person’s situation is unique and even if you feel that you also want to transfer your pension just like what your friend or officemate did, you must know that it may not be the specific answer to your problem. And it is not advisable to jump from one pension to another every time you have the little inkling in you that there is a problem with your pension.
Study about pension transfer
The process of pension transfers is guided by strict legal rules and regulations that you must at least have a background on before you undertake this process. It is imperative that you first equip yourself with knowledge about pension transfers so that you will not be overwhelmed and confused during the process. Many helpful resources online are just one click of the mouse away.
Consult with a financial adviser
It is easy to get lost in the world of complex meanings and complicated processes such as transferring pensions. But one excellent trick to avoid losing your way is to get an expert advice from an independent financial adviser or an IFA before you take a big step in transferring your pension.
Since IFAs are regulated by the Financial Services Authority, a UK government regulator, you can be assured that you will get fact-based impartial pieces of advice that cater to your specific situation and needs. IFAs especially those who are pension transfer specialists will make it easier for you to understand your situation as well as the available options in the market.
They will also be able to tell you honestly whether or not you will benefit from a pension transfer and inform you about the present changes in the pension regulations if there are any. Furthermore, they will also suggest products that can be suitable for you without any pressure of buying on your part. IFAs can help you greatly in making an informed decision so it is best that you do not undertake a pension transfer without first consulting an IFA.
Compare benefits of options available
Every pension scheme has a different set of benefits. You will find out that some pensions present more generous benefits than others. With this said, it is important to ensure that you are transferring to a pension that has better benefits than your previous one. It does not make sense to transfer your pension to a scheme worse than what you already have. Studying your options will help you avoid this scenario.
Be wary of some pension services
Let your sleuth skills get to work and do some private investigation on the options presented to you. Often, if you feel that the service is too good to be true, it probably is. Also, be wary of those services that are marketed too aggressively like selling you the pension is a matter of life and death.
Opt for a service that does not have too many up-front fees
Experts would agree that a good pension transfer service will not only be clear about its charges but also should not charge you for answering your questions.
Know where your pension is being invested
This is especially true for those who have money purchase pension schemes. It is essential to know the investment options available.
All these tips will help you gain a better understanding about UK pension transfers but probably the most important tip of all is this: spend your pension wisely!
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