Can I transfer my pension from my old job?
When starting a new job, it’s natural to wonder whether it’s possible to transfer a pension from a previous job. The short answer, of course, is yes — and it’s fairly simple to do. However, to ensure the process goes as smoothly as possible, we’ve put together a guide to transferring pensions, including important advice and answers to some frequently asked questions.
Defined benefit vs. defined contribution plan: what's the difference?
Before you can consider transferring your pension it’s important to fully understand the distinction between defined benefit pensions and defined contribution plans. It’s important to know the difference as which plan you have will affect how you go about transferring your pension from a previous employment.
Defined benefit pension:
With defined benefit pensions (also known as a final salary scheme), employers guarantee a specific retirement benefit sum for each eligible employee. This sum is usually determined by factors such as the employee’s salary and the number of years they have spent with the company. The scheme involves employers making contributions which are calculated to meet the defined benefit promise to the employee. Employees may be obligated to contribute as well.
With defined benefit pensions, you will only be able to receive fixed payments (which normally rise annually with inflation). Additionally, to receive the full benefit being offered, you can only begin to receive payments on reaching the scheme’s standard retirement age which is generally at least 60.
Today, defined benefit pensions are rare in the private sector, but they remain popular in the public sector, with NHS workers and teachers still being offered the plan. For this reason, they are sometimes referred to as the gold-plated pension scheme, so transferring them, if possible, needs to be thought through very carefully. This generally requires formal financial advice by the scheme.
Defined contribution pension:
With employer sponsored defined contribution plans, the company makes a contribution, which is generally a percentage of salary, and employees may be required to contribute to qualify for this. Employees can opt to increase the contributions as well.
The employee is responsible for the amount they contribute and choosing investments available with the plan. A defined contribution pension gives you a retirement value based purely on the amounts invested, and any investment return, until retirement age.
When it comes to transferring pensions, the process is simpler when transferring from one defined contribution plan to another. The process for a defined benefit scheme is more complicated.
The prospect of moving from a defined benefit pension to a defined contribution may seem tempting for a variety of reasons including the ability to withdraw flexibly as much as you want from your pot from age of 55 (rising to 57 in 2028). However, this potential advantage aside, transferring away from a defined benefit pension plan involves giving up a secure stable income, generally protected from inflation, that may be guaranteed to be enough to live off. So, unless there is a particular reason you would benefit from transferring in a demonstrable way, it’s generally advisable to stick with a defined benefit pension.
If you’re looking to transfer your defined benefit pension and the value of your defined benefits is more than £30,000 you are required by law and must provide evidence that you have received regulated financial advice. For more information or to speak to an expert please get in touch for a free initial review.
Given the complexity for transferring defined benefits pensions, we will largely focus on transferring defined contributions pensions.
Can I transfer my defined contribution pension to a new job?
When you leave a job, the pension you’ve built up will remain yours. This is the case even if you don’t transfer it, meaning you will still have access to it once you reach pensionable age. It’s your choice, however, whether or not you choose to continue paying into it yourself or opt to transfer the pension from your previous employer to your new one.
How do I transfer my defined contribution pension from a previous employer?
Firstly, you will need to contact the provider you wish to transfer to. This can potentially be done via your employer. Most providers will arrange the transfer on your behalf, although it's possible that your existing provider will charge an exit fee when you transfer.
As the steps required vary from provider to provider, you may need to get in touch with both old and new in order to determine what’s possible for you.
Is it necessary to transfer my pension to my new employer?
Transferring your pension is your choice, and there are advantages and disadvantages to doing so. It's important that you’re clear on these before making your decision.
Before going ahead with a pension transfer, you should consider the terms and conditions of your previous scheme versus the one offered by your new employer, e.g., whether there are financial benefits to staying with your previous scheme, such as a guaranteed annuity rate, or conversely, if there are penalties for transferring away from the scheme early.
There can be a deadline for transferring. So, when moving to a new job make sure you are proactive about making your transfer decision. This is to avoid missing any transfer deadline.
How do I know if I have a pension from an old job?
It can be difficult to keep track of all the pension schemes you’ve had throughout your working life. Fortunately, the UK government provides a Pension Tracing Service to help you track all your pension schemes, even if you no longer have contact details for your pension provider. Before trying to access the service, try and collate as much relevant information as you can, including the names of your employers and the dates you worked there. Bear in mind, however, that the tracing service will only inform you of the contact details of the pension’s current administrator. It’s then up to you to contact them to find out more about your pension.
What happens to my pension when I leave a job?
As mentioned above, your pension remains yours regardless of whether you leave a job. If you have a defined contribution pension and stop paying into the scheme, the money will remain invested, and you will receive it in the form of a pension once you reach the scheme’s pensionable age.
Once you start a new job, you can choose to keep making contributions into your old pension, or you can combine the old and new pensions together.
What is a frozen pension?
In the UK, a “frozen pension” is a term used to refer to the pension you had in a previous job, into which you no longer make contributions. While the term frozen pension is frequently used, the official term to describe this is “dormant pension”.
With dormant defined contribution pensions, although you are no longer making any contributions to the funds, it can still continue to grow in value. This is why “frozen” is not a wholly accurate term to describe it.
If you think you might have some dormant pension pots, you can use the Pension Tracing Service to find out. It’s important that you keep track of your pension pots, dormant or otherwise, especially if you have changed address or other contact information over the years. This is because you might not receive your due pension if the provider cannot trace you.
Should I combine my old defined contribution pension with my existing one?
There is no definitive answer to the question of whether or not you should combine your previous and current pensions. Although consolidating pensions does come with the huge advantage of having everything in one place, making it easier to manage and keep track of, it can also mean losing access to more favourable benefits with previous pension schemes, or it can even result in transfer penalties.
The pros and cons of merging your pension pots.
- Easier to manage - Consolidating all your pension pots into one scheme can make it far easier to manage as everything can be viewed on a single platform. Keeping a better track of your funds in this way can also help ensure you’re on the right path to meeting your retirement goals.
- Save on fees - Each plan comes with administration fees, if you’ve got multiple plans then this can start to add up to a significant sum. Having your pension in one place can therefore be more cost-effective.
- Could lose out on benefits - Merging pensions may mean you miss out on some valuable perks with your former schemes. These include guaranteed annuity rate, enhanced tax-free cash sums (allowing you to withdraw larger tax-free sums than normally allowed from your pension), protected pension age (allowing you to draw a pension sooner than the age of 55), and life insurance policies which can be pricey to replace.
- Early exit fees - Some providers charge hefty early exit fees, making it more cost-effective to remain with them.
How can we help?
Deciding on the best course of action with your pension can be an overwhelming task. Here at The Private Office, we offer expert advice on pensions, savings and investments. If you would like to find out more about how we can help you with your retirement plans, get in touch to arrange a free consultation.
Please note: A pension is a long term investment, the value of investments can fall as well as rise. You may not get back what you invest. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation. This article is for information purposes only and does not constitute personalised advice.