Four ways a pension transfer could benefit you

When did you last review your pension? If you don’t you could be losing thousands every year!

If your pension has poor growth and high fees the value of your fund could actually decrease. In such instances, a pension transfer could improve performance and significantly increase your later life income.

Of the different reasons why people transfer their pension to a new provider, the most common are to improve performance and to release tax-free cash. However, transferring from a fund that is performing well could be the wrong decision, so it is important to always take advice first.

If your circumstances allow it, here are four ways that a pension transfer could benefit you:

Increased growth

Your pension may not be performing as well as you think. Perhaps your savings are in poorly performing investments and are dwindling away rather than growing.

Or maybe your investments incur high charges that are leaving you with very little growth. Your attitude to risk may also have changed since you first set up your pension plan so it is important to check whether your investments reflect this.

Pension transfer

Tax-free cash

From the age of 55 you can access up to 25% of your pension fund as tax-free cash. To access this without buying an annuity you need to be in a fund that allows drawdown, and so may require a pension transfer to a different provider in order to release the tax-free amount. This is a popular incentive for transferring a pension, however if you move away from your existing provider you could lose some or all of your pension benefits, such as a guaranteed annuity rate, and there may also be exit charges. It is therefore important to seek regulated advice to see if taking tax-free cash and entering drawdown is suitable for you.

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Reduced fees and charges

High charges can wipe thousands of pounds from your pension savings. In fact, a difference of 1% in pension charges over 20 years could mean a difference of £25,000 in growth*. 

Transferring to a new provider with lower charges could mean avoiding such a huge financial loss. In some scenarios, it can make sense to combine your pension pots into one so you’ll only pay one set of fees.

Effective retirement planning

A pension transfer can result in higher growth, lower charges and consolidation of your retirement provisions. The latter can give you a better understanding of how much money you can expect to retire with and whether you are saving enough to meet your future needs. You’ll also be able to keep a closer eye on how well your investments are performing as your pension savings will be in one place.

Whilst there are many benefits of transferring a pension, there may also be risks and consequences to consider:

  • You could lose valuable benefits when leaving your existing provider, such as an income to a chosen beneficiary
  • You could miss out on a very good guaranteed annuity rate
  • If you transfer away from a final salary scheme you could lose a generous income
  • You may have to pay an exit charge for transferring away which could be thousands of pounds
*Based on a £50,000 sum at onset, growing at 6% per year before charges of 0.5% and 1.5% are applied.

The details provided in this article are for general information only and are in no way deemed to be financial advice.

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