Pension transfer charges

If you have a defined contribution pension you can choose to transfer it to a different pension provider at any time. You can also transfer a defined benefit pension, but will need to seek independent financial advice if your pension transfer value is larger than £30,000.

When to transfer your pension

As part of your retirement planning you may decide to transfer your pension for one or more of the following reasons:

Before transferring your pension you should thoroughly research any new providers to ensure that they are regulated. You should also check the finer details of the scheme to ensure it meets your expectations in terms of its possible risks and rewards.

You may find that you are able to save money by consolidating your pensions down to just one management fee.

Transferring your pension

Defined contribution pensions:

The majority of modern workplace and personal pensions are what’s known as ‘defined contribution’ pensions. That means their value is based on how much you and others, such as an employer, pay in and how your investments perform before you begin drawing your pension.

These days it’s unusual to only have one employer throughout your working life, and therefore one pension, and it’s not uncommon to start several small pensions during your career. Once you change employer these old saving pots can turn into a frozen pension that can easily be forgotten about if you don’t monitor your pensions regularly.

It’s relatively straightforward to locate old defined contribution pensions and transfer them into a new pot, as long as you remember a few important details such as your former employer or pension provider’s names. This is something your new provider may also be able to help with.

Defined benefit pensions:

Defined benefit pensions are also known as ‘final salary’ pensions and their value is calculated based on how long you’ve worked for your employer and the size of your salary. A defined benefit pension transfer can be more complicated than a defined contribution transfer as you may not be entitled to take all of your benefits with you.

A final salary pension transfer may require you to give up the fixed income you’ve accrued in exchange for a lesser or uncertain retirement income. If your benefits are worth more than £30,000 you’ll be required to seek final salary pension transfer advice. You can do this by consulting an independent financial adviser.

Pension transfer fees

Before you transfer your pension you should investigate what fees you’ll be charged and if there are any restrictions. The value of your pension pot may be higher than your transfer value, which is the amount available for you to transfer to another scheme once all of the outstanding pension charges have been collected.

Depending on the rules of your scheme, you may be required to pay pension transfer charges in the form of an exit fee. This fee will be charged by your current pension provider when you try to withdraw your retirement savings, and will be deduced from the balance of your pension. In some cases this may be a flat fee, but in others it could be a percentage of the fund which means the bigger your pension pot, the more it will cost to transfer.

If your pension is older and you’ve had it for a long time, you may be charged as soon as you stop making contributions. If you have a ‘with-profits policy’ or have invested in ‘with-profits funds’, you may have to pay an extra charge known as a ‘market value reduction’ or ‘market value adjustment’, but may also benefit from a ‘terminal bonus’.

The amount you’re charged for transferring your pension can vary from provider to provider and from scheme to scheme. It’s important to understand how much you’ll be charged and the impact the charges can have on your pension pot size in the short and long-term.

At PensionBee, we charge a single annual management fee of between 0.50 and 0.95%, depending on the plan you choose, which is taken directly from your pension pot. There are no hidden transfer fees, or any other kind of fees. Sign up today.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

Last edited: 06-04-2024

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