Your pension is one of the most powerful tools you have at your disposal when saving for retirement. This is because you may benefit from employer contributions and tax relief on top of your own contributions.
Additionally, the wealth in your pensions is invested, so it may grow over time. This could help you increase your savings, meaning you are more likely to be able to fund your dream lifestyle in retirement.
The level of growth that you achieve on your pension wealth depends on several factors. For instance, many providers offer a choice of different funds to invest in, and some may perform better than others.
Consequently, you might want to move your savings to another scheme and take advantage of alternative fund options. However, if you make any pension decisions without seeking professional advice first, you could affect the value of your retirement pot in later life.
Savers could collectively lose more than £1 billion in pension savings as a result of unadvised transfers
New research suggests that savers are increasingly managing their own pension transfers, and this could have a negative effect on their ability to achieve their desired lifestyle in retirement.
Indeed, FTAdviser reports that the number of unadvised defined contribution (DC) pension transfers has increased by 50% in the past four years. Further to this, the predicted loss from transfers rose from £792 million in 2020 to £1.2 billion in 2023.
This is often because savers don’t fully understand the charges they will pay. For instance, 72% of people who transferred a DC pension in the past two years didn’t know the exact fees for the new scheme they were moving their savings into.
Savers may also make decisions about pension transfers based on short-term incentives. For example, one in five people surveyed were more likely to transfer their pensions after seeing a cashback offer. This was despite the fact that higher fees from the new provider could leave them £1,000 worse off after five years.
Overall, the research reported by FTAdviser found that savers could lose as much as 20% of their pension pot by retirement as a result of unadvised pension transfers. It could take up to three additional years of work to make up that shortfall.
This doesn’t mean that you shouldn’t transfer your pension savings at all because, in some cases, it may benefit you. However, it’s crucial that you answer four key questions first.
Four important questions to answer before transferring your savings to a new pension scheme
1. Why do I want to move my savings?
Before completing a pension transfer, it’s important to consider why you want to move your savings in the first place. It may be to reduce the fees you pay or gain access to different investment options, so you can potentially grow your wealth faster.
However, it’s important to consider what kind of investment options you’re interested in and how different funds might help you achieve your retirement saving goals.
Additionally, if you’re only considering a transfer because you’ve been offered an incentive of some kind, moving your savings may not be the right option.
Having a clear idea of why you want to transfer your pension savings could mean that you’re more likely to make an informed choice about the new scheme.
2. Do I understand the fees and charges?
When choosing a new pension provider, it’s vital that you check all the fees and charges and fully understand what you’ll pay.
It’s worth comparing the fees from your current scheme with the new one. This is important because paying higher fees could mean that less of your contributions remain invested in your pension pot. As a result, higher fees could affect your ability to work towards your retirement savings goals.
3. Am I at risk of falling victim to a scam?
You may need to be aware of scams when transferring your pension because some schemes might be fraudulent. According to Money Marketing, pension scams cost consumers more than £26.4 million between 2020 and 2022.
Fortunately, the Financial Conduct Authority (FCA) introduced new measures in 2021 to reduce the chances of pension scams. The new rules give pension providers the power to block a transfer unless certain conditions are met.
Providers use a “traffic light system” to assess a proposed transfer. A green flag means your savings can be moved to the new scheme immediately.
However, the new scheme may receive an amber flag if:
- The fees and charges are especially high or unclear
- It accommodates high-risk or unregulated investments
- There is evidence of a high volume of transfers to the same scheme or involving a single adviser.
In this case, you may need to seek guidance about pension scams and possibly provide more detailed information before the transfer can go ahead.
The transfer may be given a red flag if you fail to provide this information. Additionally, a transfer may receive a red flag if you:
- Are offered incentives or pressured to make a transfer
- Request a transfer after unsolicited contact
- Work with an unregulated adviser or firm.
A red flag means the transfer is automatically blocked.
It’s important that you do your research to ensure that you are transferring your savings to a legitimate pension provider so you can avoid this situation. You may also benefit from professional advice, especially if you need to gather additional information about the transfer.
4. Could I benefit from professional advice?
Working with a professional financial adviser could help you navigate a pension transfer more successfully. We can discuss your reasons for wanting to move your savings in the first place, to determine if it’s the right option for you.
Then, we can explore different pension schemes and find one that aligns with your financial goals. We’ll also perform due diligence so you’re less likely to fall victim to a scam.
Ultimately, this could mean that you see better outcomes from your pension transfer, putting you on track to achieve your dream lifestyle in retirement.
Get in touch
If you are considering moving your pension savings, we can guide you through the process and ensure the transfer aligns with your long-term financial goals. We have been awarded the “Pension Transfer Gold Standard” by the Personal Finance Society (PFS), demonstrating our expertise in this area.
Please get in touch or email us at advice@mlifa.co.uk for more information.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.