How to transfer your UK pensions

Do you know how many pensions you have? Transferring a pension can be a complex process, but it can also be a phenomenally wise and helpful financial move for some individuals.

The Pensions Policy Institute estimates that just under two thirds of UK adults have multiple pensions.[1] This is occasionally well justified, which I will come on to discuss, but, generally, there are very few reasons to have more than one or two pensions. The average person in the UK will have 12 jobs in their lifetime which, with the introduction of auto-enrolment in 2012, means 12 pensions.[2] That also means 12 headaches, 12 different valuations, 12 different investment strategies, 12 sets of fees and a serious amount of disorganised confusion.

What to check before transferring your pension

There are a number of things that you should be aware of before transferring a UK pension, and a few reasons why you might be better leaving it right where it is. Back in April 2006, a major overhaul of pension rules came into effect, introducing the lifetime allowance and removing the requirement to buy an annuity.[3] Today, you can usually take up to 25% of your pensions as a tax-free lump sum, subject to a maximum of £268,275. This cap was introduced in April 2023 when the lifetime allowance charge was abolished.

These rules were not applied retrospectively to schemes. Whilst many of these changes brought about numerous simplifications from this date onwards, any pension scheme you want to transfer that was established prior to April 2006 will likely need careful assessment by a pension specialist. You could be entitled to an enhanced level of tax-free cash, an attractive annuity rate could be attached to the pension scheme, or you could hold a ‘with profits’ investment fund that has favourable guaranteed bonus rates.[4] These may be lost if you transfer the pension.

Of course, whilst it’s more common to find unusual protections or enhanced benefits attached to a pre-2006 scheme, they do occur in later schemes too. Unless you are absolutely certain you have none of these benefits in place, it is always best to seek advice prior to transferring a pension.

How to transfer your pension

With each job change, transferring your old workplace scheme into your new one should be a simple process. As mentioned previously, you should first check your current scheme allows transfers and that you will not lose valuable benefits. Choose a new scheme that offers a better deal and accepts transfers and confirm if advice is required. Request a transfer value from your provider and ask the new scheme to initiate the process. Transfers usually take two to six weeks, though providers have up to six months to complete them.

If you want to maximise choice or have professional help with your pension, you could also establish a self-invested personal pension (SIPP) alongside your current workplace scheme, transferring all old pensions into the SIPP. Funds from your active workplace scheme can then be transferred across on an annual basis so they can be managed by a professional manager.

Why, then, would you ever need more than one or two?

Are all pensions transferable?

It’s important to note as well that not all pensions are eligible for transfer. Some defined benefit pensions, for example, may not be transferable. In fact, if the transfer value offered to you on a DB scheme is in excess of £30,000, the law requires you to take advice on a possible transfer and the advice may well be to do nothing.[5]

Should you transfer your pension?

For me, the main reason to transfer your pensions is to create a level of organisation that Marie Kondo herself would be proud of. Personally, I want one mobile app that provides a simple overview of all my money so it’s not a complete headache to keep on top of.

However, this isn’t just about aiming for a stress-free financial life. Organisation will provide you with a greater chance of financial success. Your investments should ultimately be driving towards your needs and objectives. If you have multiple pots, it’s unlikely that your strategy is working towards your goals. Worse still, you are probably invested in the various schemes’ default fund that may not be suitable for your needs. In addition, many default funds are invested in a similar fashion. As such, ironically, by having more pensions (where the investments aren’t managed) your investments may not be suitably diversified.

The advantages of transferring to a SIPP

A SIPP also provides the widest possible array of options and complete flexibility when you are in drawdown.[6] Unbelievably, a significant number of workplace pensions do not provide flexible income withdrawal options. This means that, if you want to take income from your pension in retirement, a SIPP is often the best option. If you’d like your funds professionally managed, it is perhaps your only viable option. This is assuming you would like the manager you are working with to have the widest possible options available to them to manage your money across the broadest array of asset classes.

When transferring a pension, if you are transferring to a SIPP, it is important to ensure that the new provider is registered with the Financial Conduct Authority.[7] Equally, if you are transferring to a stakeholder scheme, do ensure it is properly registered with the UK’s pensions regulator.[8] This ensures that the pension plan is regulated and that your retirement savings are more effectively protected.

Transferring your UK pension

In summary, transferring a UK pension can provide access to a wider range of investment options, simplify the management of multiple pension plans, and potentially provide better investment outcomes. However, it is important to carefully consider the potential risks and drawbacks before making any decisions and to seek professional financial advice if required.

Are you ready to take control of your finances? Maybe it’s time to sort your pensions out…