Bringing your pensions under one roof

Pension transfers can be complicated and you should always seek professional financial advice before going ahead. Remember, whether a transfer is suitable or not will very much depend upon your individual circumstances and objectives.


There are a number of different reasons why you may wish to consider transferring your pension(s), whether this is the result of a change of employment, poor investment performance, high charges and issues over the security of the pension scheme, or a need to improve flexibility.

You might well have several different types of pension, including a final-salary related scheme(s), which pays a pension based on your salary when you leave your job and on years of service. Your previous employer might try to encourage you to move your occupational pension away by boosting your fund with an ‘enhanced’ transfer value and even a cash lump sum. However, this still may not compensate for the benefits you are giving up, and you may need an exceptionally high rate of investment return on the funds you are given to match what you would receive if you remained in the final-salary related scheme.

Alternatively, you may have a defined contribution (money purchase) occupational scheme or a personal pension. These pensions rely on contributions and investment growth to build up a fund.

If appropriate to your particular situation, it may make sense to bring these pensions under one roof to benefit from lower charges, make fund monitoring easier and aim to improve fund performance. But remember that transferring your pension will not necessarily guarantee greater benefits in retirement.

You will need to consider that your pension(s) might have or had other valuable benefits that you could lose when transferring out, such as death benefits or a Guaranteed Annuity Rate (GAR) option. A GAR is where the insurance company guarantees to pay your pension at a particular rate, which may be much higher than the rates available in the market when you retire.

In addition, some pensions may also apply a penalty on transferring out. These can be significant depending on the size of your fund, so it is important to check if one applies in your case.

It is also important that the investments chosen are appropriate for the level of risk you are prepared to take. Obtaining professional financial advice will mean that you are fully able to understand the risks and potential benefits of the different funds and investments and can make an informed decision about the level of risk you are prepared to take.

Transferring your pension overseas
The ability to transfer a pension from the UK to another country formed part of the pension simplification reform known as A-Day, introduced on 6 April 2006. Under these changes people no longer resident in the UK, but who have UK pensions, are now allowed to transfer their pensions across to a Qualifying Recognised Overseas Pension Scheme (QROPS), provided they meet certain conditions.

Transferring your pension overseas into a QROPS, which has been approved by HM Revenue & Customs (HMRC) to accept a pension transfer from a UK pension scheme, is an important decision that may give you extra benefits.

It is vital that you understand all aspects of any QROPS pension transfer, which is why you should seek professional financial advice to evaluate your personal situation and to understand the process in full.

With reference to HMRC rules, a transfer into an offshore pension scheme qualifies as a benefit crystallisation event. This means that your UK pension is given a valuation against your Lifetime Allowance, which is the limit on the value of retirement benefits that you can draw from an approved pension scheme before tax penalties apply. The allowance currently set is ?1.8m for 2011/12, and in 2012/13 the figure will reduce to £1.5m.

The possibility of transferring a UK pension into a QROPS can be extremely beneficial to expatriates living abroad in Europe and the rest of the world. A QROPS pension transfer can also be of great interest for someone who has not yet left the UK but is in the process of planning to do so.

QROPS pension schemes are not just for UK nationals either. People of different nationalities who have accumulated a pension fund through working in the UK can also transfer their pension into a QROPS.