How Pension Transfers Work

If you're considering transferring your pension, then it's a good idea to have an understanding of how the transfer system works. The first thing you'll need to know is the type of pension you want to transfer from: a money purchase pension scheme or a final salary scheme. This is important, as the transfer value of your pension is calculated differently for each type.

Money Purchase Pension Schemes

In this type of scheme (also known as a Defined Contribution pension), your contributions are invested and added together, and the money generated by the time you retire is used to purchase an annuity, which gives you a guaranteed income for the rest of your life. If you have a money purchase pension scheme, then before you transfer, you need to request a statement of transfer value from your current pension scheme administrators, which will be based on the current value of your contributions.

If you decide to proceed with the transfer, you should make a written application to your pension scheme administrators, who will be obliged to complete the transfer within 6 months. However, it's worth bearing in mind that the statement of transfer value will only be a snapshot of your pension value at that time, and when your pension is actually transferred, you may get less (or more) than you were expecting.

Final Salary Pension Schemes

A Final Salary pension (also known as a Defined Benefit pension) guarantees you a pension that is a fixed percentage of your final salary. If you are thinking about transferring this type of pension, then you will need to make a written request to the administrators of your pension for a 'Statement of Entitlement'. Within 3 months of this request, the pension administrators should provide you with a transfer value for your pension, which will be guaranteed for another 3 months (the date will be shown on the document).

If you decide to go ahead with the pension transfer, you should make a written application to your pension scheme administrators (make sure you do so before the guarantee expires), who must complete the transfer within 6 months of your request.

Before you transfer any pension, take a close look at the penalties of leaving your existing scheme, and make sure you have compared the different products as closely as possible, particularly projections of final income.