Pension transfers can seem simple yet complex at the same time.
This is because it’s true 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. You need to be aware of both sides of the story.
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 what they are and how to approach them as clear and easy as possible.
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
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.
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 concern that perhaps one day you could lose the lot due to an unscrupulous raider like Robert Maxwell who after his death, it transpired 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 advisor.
Please continue reading this article on page two…>>>