Should I transfer my pension to my new employer? So you have moved on from one two or more jobs. Now, what should you do with this collection of small, medium and hopefully large pensions?
You potentially have a number of options from doing nothing to merging them all together.
You possibly could do one or more of them, whether you should, may require and bit more thought and information to make an informed decision.
Generally, when you leave a company, your pension just sits there waiting for you to do something with it.
The pension, YOUR pension, is in your name and not the companies. So when you leave the company, your pension stays the way you left it.
It “generally” remains invested in the way you left it. It will go up and down according to how its invested and whats going on in the wider market.
It “generally” remains the same depending on you a few things—your age and or if there are any lifestyling elements to the pension scheme.
Some pension schemes have a lifestyling component whereby when you reach a certain age, it will start to dial down the stocks and increase the bonds holdings. In theory, this is to reduce the volatility of the fund as you come near to retirement. Hopefully, so that you don’t see your pension fund go down dramatically the day before you retire.
Lifestyling doesn’t stop your pension going down in value; it just might help make it a less bumpy ride.
Is it a good idea to transfer my pension?
That depends on what you are trying to achieve by transferring it.
Are you trying to:
- Reduce your admin?
- Reduce your costs?
- Change your investments?
- Increase your returns?
- Do something else?
Any of these may be good ideas depending on a few additional questions
If you transferred your pension
- Would you lose any benefits?
- Would it costs you any money and do you know how much?
- Do you need additional advice to make sure you have thought it all through?
- If you have a defined benefit pension, then you are obliged to get financial advice on any pension transfers due to the risk of losing some benefits.
When might it be a good idea to transfer my pension?
It might be a good idea to transfer your pension if it makes it easier for you to track and manage your pension/s.
If they are all in one place, it can make the admin of them, understanding what’s going and what action might need to be taken easier to undertake. Having it all in one place may also reduce your confusion and stress over managing several pension pots.
It may be a good idea to transfer a pension if the new pension is substantially cheaper to run. The less money you pay out in fees means the more money you get to keep.
And it may also be a good idea to transfer your pension if what the old one is invested in is now no longer what you feel comfortable with. Maybe you now want to diversify your investments in a different way, i.e. less in this and more in that.
It may be that back in the old job, there wasn’t much choice of investments, but now there is. Maybe you have more of a choice what sort of things to invest in including environmental, social or good governance (ESG) related investments.
Maybe now you would like to make more investments in companies you think are more or less ethical than others to meet your values or interests.
When might it be a bad idea to transfer my pension?
In short, when you have no idea what you are doing.
You need to gather the data of where your pensions are, what they’re invested in, what the fees are and what might be the conditions of any transfer, i.e. costs and or loss of benefits.
And then weigh this against what you think the benefits of transferring are?
The benefits could be.
- What the new pension is invested in.
- What the fees are
- What the conditions of the new pension are, i.e. does it have any costs or loss of benefits if and when you transfer out of that one?
Once you have this data, you can make an informed choice and or realise you need further guidance and advice.
Can I transfer my pension myself?
If you have a defined contribution pension, it is usually possible to do this yourself.
You will need to review if there are any potential costs or loss of benefits so that you can transfer without any nasty surprises. You can ask your previous pension scheme if there are any costs or loss of benefits if you move your pension.
If you are happy with what you have found out, it is usually possible to request the pension transfer from your new pension scheme. You may also need to request the transfer from your old pension scheme just to join the two ends of the request together.
Either way, you obviously need to have somewhere to and from the transfer to take place and let these two sides know what you want to do.
If you want to transfer a defined benefit pension, then this is where you will likely have to take financial advice. The reason for this is because these types of schemes had a lot more inbuilt benefits (a guaranteed income) amongst others that you may well be losing once you transfer out of it.
Transferring out of a defined benefit scheme has a lot more things that might need consideration and clarity on why you want to transfer and what benefits you might be gaining and giving up.
Can I transfer my pension without financial advice?
For defined contribution pensions yes it is usually possible to transfer this without financial advice.
For defined benefits schemes, you will likely have to take financial advice before being allowed to transfer.
If you have a large pension/s and or you have complicated, expensive questions then maybe it might be useful to get some further guidance or advice if it’s a good idea to transfer.
You can weigh this potential additional costs of someone’s time against getting it wrong by yourself.
Is a pension worth staying at a job?
Do you like the job or not?
If you do like your job, then a good pension is a bonus.
If not you are basically saying that your company is compensating you for doing something you hate so that you can enjoy the money when you are a lot older and less able to spend it.
How does that deal sound to you?
Yes, you need a pension of a decent size for a dignified, comfortable, independent lifestyle. However, you need to balance that with your current self.
I like the quote below from Warren Buffet – its alluding to using your money now on the things that bring you joy but also conscious that you will need cash in your old age as well.
“It’s nice to have a lot of money, but you know, you don’t want to keep it around forever. I prefer buying things. Otherwise, it’s a little like saving sex for your old age.”
Summary: Should I transfer my pension to my new employer?
You could merge your pensions for ease of management, reduce costs and or change the way your pension is invested.
All or some of the above may make it a good idea to transfer them to your new employer.
The reverse may also be a reason not to i.e. its ok where it is right now.
Its usually easier to transfer defined contribution schemes as these usually have fewer strings attached than defined benefit schemes.
You are likely to need to take financial advice on transferring any defined benefit schemes as changing this type of pension might mean the loss of some benefits.
Gather the data to make an informed pro’s vs con’s decision on whether to transfer to a new pension scheme or if you need to seek further advice.
Good luck out there.