Saving for retirement is a good way to take control of your future, but are you sure you’re doing enough to maximise your income in later life? If your pensions aren’t working hard enough, it could be worth transferring them to another place. Here’s everything you need to know about pension transfers.
What is a pension?
A pension is a sum of money that is paid to you, often on a regular basis, as soon as you retire. And if you want to be sure to get any pension, you’ll need to put money aside during your working life – in other words, a pension is all about paying yourself now so you can treat yourself in the future. Sounds easy, right? Well, pensions can, in fact, be quite complicated as there are different types which come with their own benefits and rules. So, if you want to make the most of your retirement, it’s important to familiarise yourself with the world of pensions. Luckily, here is a quick guide that explains everything you need to know about pensions.
What are the different types of pension?
The state pension is a regular payment you should receive from the government when you reach retirement age. Typically, the income you receive depends on you having paid a certain level of national insurance contributions over your working life. If you’re employed and earn over £166 a week, your company should take care of everything and pay your national insurance contributions out of your salary. If you’re self-employed, however, you won’t have anyone to make contributions on your behalf, and you’ll need to do it by yourself. To get any state pension, you’ll need at least 10 years’ worth of contributions – if you don’t save enough, you may not receive any money from the government. The maximum you can currently get is £9,100 a year, but to receive the full amount, you’ll need 35 years’ worth of contributions1. As things currently stand, only 44% of UK pensioners have been able to claim the full amount2, so make sure you’re on top of your national insurance contributions. If you have any gaps and worry about not having enough years of contributions to receive the full state pension, it could be a good idea to contact HMRC and check how many years you’ve got to catch up and whether you’re eligible to pay voluntary contributions. You can check your contributions online yourself: https://www.gov.uk/check-national-insurance-record
If you’re able to claim the state pension, you’ll only be able to enjoy the money after you reach your pension age. This retirement age will depend on many factors, including your gender and your date of birth, but also new governmental policies.
Workplace pensions are pension schemes that let you save for retirement and they’re generally arranged by your employers. There are two types of workplace pensions:
- Defined benefit schemes (also known as final salary schemes): with these, you can expect to receive a guaranteed income for life from the day you retire, and the amount you’ll get should increase every year.
- Defined contribution schemes: everything you put in these is invested by a pension provider chosen by your employer, and the pension you’ll receive will depend on how much you’ve paid in, how long you’ve been paying in, and how well the investment has performed.
If you’re employed, you’ll be automatically enrolled in your workplace pension – this is a government initiative to encourage us to think about our later life whilst we’re still young. And typically, with a workplace pension, you and your employer will put money aside for your retirement and this money will be invested in funds – think of them as baskets full of investments, such as shares and bonds. Currently, you must contribute at least 5% of your salary and your employer should pay a minimum of 3% of your pay. You don’t need to arrange any payment as everything is automated and your agreed portion of your salary will go to your pension pot every month before tax. Obviously, if you can afford to pay more into your pot, feel free to review your contributions – increasing what you put aside could potentially help your pension pot grow a little faster.
To take money out of your workplace pension, you’ll need to move your pension into drawdown. But before you make any pension withdrawal, make sure you check the rules of your pension schemes as they’re the ones deciding when and how you’ll be able to drawdown your pension and take your money out. Most pensions will let you withdraw money as soon as you turn 55 – but it’s always worth double-checking.
It’s not always well known, but if you want to take control of your retirement and save for your later life, you can open a personal pension. What is a personal pension? Well, it’s a type of pension that gives you more control and flexibility over your retirement savings. Not only do you have some say on how and where your money goes, but you can also make your own contributions. And the good thing about having a personal pension is that your investment can grow free from income and capital gains tax. But it doesn’t stop there! With a personal pension, you’ll get tax relief on your contributions. So, if you’re a basic rate taxpayer, you’ll receive 20% tax relief – this is to compensate for the income tax you’ve already paid. Every time you earn £1,000, the government will usually take £200 out of it – that’s your 20% income tax. But if you put the rest (£800) in a personal pension, then the government will reward your long-term investment by adding £200 to your pot and you’ll have £1,000 saved in your pension. Now if you do the math, you’ll quickly realise that £200 is 25% of £800, meaning you’re effectively getting a 25% uplift on each contribution you make. The top-up increases if you’re a higher or an additional rate taxpayer, but you’ll need to contact HMRC to claim your extra allowance.
How much can you put in a personal pension?
In practice, you can put as much as you want, however, the amount you get tax relief on is limited to £40,000 a year (or 100% of your earning, whichever is lower) – this is your pension annual allowance and it includes the combined contributions made by you and the government.
When can you start taking money out of your personal pension?
Everything you put in a personal pension is locked away, and you’ll only be able to drawdown your pension and access your money after you turn 55 (which is increasing to 57 from 2028), but you’ll still be able to pay into your pot until your 75th birthday. Once you reach 55, you’ll be able to take up to 25% of your money as a tax-free lump sum, and the way you withdraw your funds will depend on whether your pension is a defined benefit scheme or a defined contribution scheme. With the latter, you’ll be able to either take your whole pension in one go as a lump sum, withdraw money when you need it, or get paid a regular income based on your pot size.
What does it mean to transfer a pension?
When you transfer a pension, you’re typically moving any money you’ve built up in previous years to a new provider, whilst preserving the tax benefits of your pension. Whilst you can’t transfer your state pension, you’re allowed to move your workplace pensions and personal pension(s) to another pension provider.
Why transfer a pension?
There are many reasons for transferring your pension. For example, say you’ve moved jobs several times and have enrolled in different workplace pensions throughout your career. You may have so many workplace pensions that it’s hard for you to keep track of your money, pension fees, and different withdrawal policies. One thing you could do to make things easier for yourself is to consolidate all your pensions by getting them in one simple scheme. That way, you’ll find yourself with a single pot of money, a single set of fees, and a single withdrawal policy.
Another reason to transfer your pension could be poor service. If you’re disappointed with the investment strategy of your current provider or think you’re paying too much in fees, it could be worth looking at what other pension providers have to offer. Also, if you want your investments to have a good impact on the environment and society, then it could be a good idea to check pension providers that offer ethical pensions.
What are the rules when transferring a pension?
Transferring a pension comes with many different rules and it’s worth being aware of them if you want to move your money somewhere else.
- Transferring a defined benefit scheme can be quite complicated, and if your pension savings are worth £30,000 or more, you’ll be required to take financial advice before doing anything.
- If you transfer a defined benefit scheme to another provider, you may lose some of the valuable benefits attached to it, such as a final salary promise, where you’re guaranteed to receive what you were paid when you finally retire.
- Not all providers will accept the transfer of defined benefit schemes, so make sure you check before requesting a transfer.
- Similarly, some providers will not accept a transfer if you’re already taking an income from your pension.
- Some providers will charge an exit fee for transferring out before a certain date, so make sure you check the transfer policy of your current provider.
- Transferring a pension can require your investments to be sold, so they can be converted into cash, transferred over, and then invested by your new provider. This means you could find yourself with less money after the transfer is completed if the value of your investments is down during the sale.
- Some providers will be able to transfer your money whilst it’s still invested – this is known as in-specie and is sometimes available for transfers between personal pensions. But this may incur additional charges, so remember to check when shopping around for your new provider.
- Beware of scams – if a pension scheme claims you can withdraw money without penalty before 55, it’s probably too good to be true.
If you’ve decided to transfer a pension, it’s important to check the different rules and it may be worth seeking financial advice, so you can make the right decision for your later life.
How to find a lost pension
To be able to transfer a pension, you should be able to locate it. So, what happens if you’ve lost your pension? Well, first don’t worry, you’re not the only person in the UK to lose track of your pension. A recent study has found that there are about 1.6 million unclaimed pension pots in the country – and together, they’re worth more than £19 billion3! If you don’t know where your pension is, it could be a good idea to locate them, and the good news is that it’s pretty easy to lay hands on your pot. All you need to do is visit the HMRC website and fill in a quick online form and you’ll be given the contact detail of your pension provider: https://www.gov.uk/find-pension-contact-details.
How long does it take to transfer a pension?
It all depends on the type of schemes you’re transferring and the pension providers you’re dealing with. If you’re moving a defined contribution scheme, the transfer should take between two and three weeks. But if you’re transferring a defined benefit scheme to a new provider, you could expect to wait six months before the transfer is completed.
Also, if there are issues locating your pension, or if important documents are missing, then the timeframe could be extended. So, before you start the transfer process, it could be wise to locate your pension and gather all the paperwork you’ll need to move your pension, this includes a copy of your ID and details about the pension you want to transfer.
Can you transfer an ISA into your personal pension?
No, you can’t transfer an ISA into your personal pension because both account types are subject to different tax treatment. Put very simply, with an ISA, you don’t pay tax on any profits you make, but there’s no tax relief on your contributions. On the other hand, with a pension, you will receive a 25% tax relief top-up on every contribution you make, and you can expect to pay tax on your profits, although you’re allowed to take up to 25% of your money tax-free.
Also, ISAs and personal pensions come with different allowances. With an ISA, you can only save or invest up to £20,000 per tax year. With a personal pension, it’s a bit different as you can contribute as much as you want but will only get tax relief on £40,000, or the totality of your earnings (whichever is lower) – and remember, this must be the combined contributions made by you and the government.
Finally, ISAs and personal pensions have different rules when it comes to accessing your money. Whether you have a Cash ISA or a Stocks and Shares ISA, you’re allowed to withdraw at any time. But, if you’re investing in an ISA, it’s usually a good idea to think about the long-term as it gives your money more time to grow. By taking your money out of a Stocks & Shares ISA, you may miss out on positive growth, so try to stick with your investments as long as you can. If you have a personal pension, you won’t be able to access your money until you turn 55, so you’ll need to be prepared to leave your money alone for some years.
How to find the best pension provider
If you’re looking to transfer your pension, it’s important to try and find a provider that suits your needs and can help you reach your retirement target. But how do you find the best pension provider? Well, ‘best’ here is subjective and it will depend on what you’re expecting from your pension. Some people may focus their attention on performance, others may be looking for more transparency and flexibility. So, you could start by asking yourself this simple question: ‘What am I looking for?’ This should help you narrow down the choices.
Then, it’s time to shop around and compare what different providers have to offer. Depending on your priorities, you may want to look at the fees taken by each provider. Fees and charges will eat into your returns, so it could be wise to try and keep them to a minimum. It’s also a good idea to look at the services being offered too. What kind of pension are they offering? Where is your money invested? Can you easily check the performance of your pension? What is their withdrawal policy? And how good is their customer service? These are some questions worth asking yourself before you make a decision.
As online investment providers are multiplying, it could be worth checking out robo-investing platforms. These services are designed to make investing as effortless as possible. With Wealthify, for instance, you get to choose how much you want to put into your pension and you can select your risk level, from cautious to adventurous – which will determine how we invest your money. Then, our experts build and manage your pension, that way you can spend more time enjoying the present and less time worrying about the future.
How to transfer a pension
Transferring your pension can feel daunting, but it doesn’t need to be. Before starting the transfer, you’ll need to locate your pension pots and collect all your pension documents. Then, all you need to do is contact your new provider and let them know you want to transfer your pension. You’ll need to provide them with some information, including who your provider is, a reference number, and an estimated value of your pot – these details can easily be found on your latest pension statement. Then your new provider will contact your old provider to get the transfer process started. You may have to contact your old pension provider, especially if they object to the transfer or need further confirmation, but you will be told if this happens. Throughout the entire process, your new pension provider should be in touch with you if anything is needed from you, whether it’s signing a form or sending more documents. Once the transfer is completed, you may want to check everything is where it belongs.
At Wealthify, transferring your pension has never been easier! Let us know when you’re ready to transfer your pension and don’t forget to provide us with all your pension details and documents. We’ll do the hard for you, from contacting your old provider to getting your money transferred to us. Once the transfer is completed, we’ll manage your Wealthify Pension and make any adjustments when needed to keep your Plan on track with your investment style and retirement goals.
If you have any questions about pension transfers, please feel free to contact us on 0800 802 1800, or via Live Chat.
Do you know how much you’ll need in your pension pot for your dream retirement? Our new pension calculator can help give you a good idea of what you might need to save.
Past performance is not a reliable indicator of future results.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.