Pension Transfer Dos and Don'ts

Before requesting a transfer for your pension scheme, consider these essential dos and don'ts...

DO

• Seek advice from a specially licensed independent financial adviser.
• Check the financial position of your old scheme. If it is in surplus (it has more assets than pension liabilities) it may be advisable to stay with the scheme.
• Consider your retirement options. Make sure the scheme to which you are switching has the ability to handle your requirements.
• Demand a transfer value analysis. This will allow you to compare the benefits of your pension with the alternatives, and will also provide you with a critical yield, which indicates how fast an alternative scheme will have to grow to match the benefits in your old pension. If the critical yield is 8% or less, then a transfer may be worth considering.

DON'T

• Switch if you are less than 10 years away from retirement, unless the benefits of income drawdown outweigh the benefits of a secure payout.
• Transfer from a public sector pension scheme, such as the teachers' or the nurses' scheme, even if you left their employment years ago. These schemes are guaranteed against inflation and also allow "linking" of different service years if someone returns to teaching or nursing after several years' absence.
• Switch from your existing occupational pension scheme if both you and your employer are currently making contributions. A transfer should only be considered if you have left your employer. No private pension scheme can match the benefits provided by your employer.
• Transfer if you have just a small amount of money in your former pension; transfers are only worthwhile considering if the amount is worth more than £10,000.
• Transfer from a pseudo-public sector scheme, such as the Water or Mineworkers' schemes. These offer extremely generous range of benefits which are difficult to match elsewhere.
• Transfer without checking the death benefits of the former scheme, which may not be matched in a personal pension without having to buy a life insurance policy.
• Transfer from a final salary scheme if you are averse to risk. Money placed in these schemes offers guaranteed benefits, whilst a personal pension will be subject to the rises (and falls) of the stock market.
• Transfer into a personal pension from an occupational money purchase scheme; these schemes are effectively already a personal pension and a transfer to another personal pension is unlikely to be advisable.