How does a pension transfer work?

In answering this question we have to be clear whether you are enquiring about a

1. A Defined Benefit (DB) pension scheme, also known as Final Salary scheme

Or

2. A Money Purchase also known as Defined Contribution (DC) pension scheme

1. Defined Benefit/Final Salary Pension Schemes

In order to transfer a DB type of pension, you will need to obtain a Guaranteed Transfer Value (GTV).

The GTV will be valid for 3 months, which means you will have 3 months to find out whether a transfer is the right course of action.

During this time period, you should go through the pension transfer process of Triage, Abridged Advice and Pension Recommendation Report

In practice think of this as 3 separate steps for you to take if you were to proceed through the whole process – bear in mind you may be advised or choose not to proceed at various points along the way.

STEP 1
OBTAINING YOUR CETV

Before you can start the advice process, you need to get a Transfer Value from your scheme. This is the amount you will get if you transfer.

If you’re thinking of transferring from a Defined Benefit scheme, you should approach your scheme administrator or pension provider.

They will provide you with a Statement of Entitlement to verify if you are eligible for a Cash equivalent transfer value (CETV), also known as a transfer value.

If you are eligible for a transfer they will issue the CETV in the form of a written document which sets out your transfer value, together with details of the benefits you have built up under the scheme.

STEP 2
CONSULT A PENSION TRANSFER SPECIALIST

If your transfer is valued at more than £30,000, then you must consult an advice firm that is authorised by the FCA and has the permissions to offer pension transfer advice.

Firms who can offer this advice are on the Financial Services Register as ‘advising on pension transfers and opt-outs’. Only Independent Financial Advisors can offer the full range of financial products and providers.It is here that you’ll go through the Triage and if necessary the Abridged advice stages mentioned above.

STEP 3
TRANSFERRING YOUR PENSION

If you go to the third Full Advice stage and your advisor recommends a transfer they will manage the transfers into a suitable personal pension which you will have control of.

Once the report has been received, then the relevant paperwork from the DB scheme will need to be completed together with the application form for the new pension. This must be received by the administrators of the DB scheme before the end of the 3 month guarantee date and they have up to 6 months to process the transfer. In most circumstances, the administrators will complete this way before the 6 month deadline.The transfer is then sent as a cash payment to the chosen pension provider and is then invested into funds.

From then on, it is critical you have your pension properly managed throughout your lifetime to ensure it is invested in funds which are appropriate to your risk profile and other circumstances. A sound cashflow plan is also vital to ensure you don’t ever run out of money.

2. Money Purchase Pension/Defined Contribution scheme transfers

A transfer from one Money Purchase type of pension to another can be dealt with in 2 ways:

1. The funds from the pension which is being transferred can be sold and transferred to the new scheme as a cash payment and then re-invested into funds in the new pension. The potential issue with this type of transfer is the length of time the monies are not invested or ‘out of the market’. This means if the stock markets rise sharply whilst the monies are being sold down into cash, there could be a time when growth is missed.

2. The funds from one pension are transferred ‘in specie’. This means they are not sold down into cash but if possible transferred as they are. This helps to mitigate the risk of monies not being invested. However, it is not always possible to do ‘in specie’ transfers because of, for example, different share classes, or types of funds not being acceptable by the new pension.

Pension transfers are one of the most complex areas of financial advice with so many aspects to consider. Whichever type of pension you are thinking of transferring you should take Independent Financial Advice before proceeding any further.

Interested in finding out more?

Seeking a second opinion on your financial future costs you nothing.

Simply call our friendly team on 0121 355 4455 or drop us an email to appointments@oaklandswealth.com to arrange a confidential chat.

Oaklands Wealth Management, founded by Helen Blackburn in 2004 advises clients around the Midlands on retirement planning, pensions & investments.

Her firm holds British Standard BS 8577 for client service & investment process.

Minimum investment is £500,000 (£650,000 for pension transfers).