Moving Pensions

October 22, 2021

Moving a defined contribution pension (DC) is not as easy as some clients think, because advisers invariably have to do a fair bit of groundwork, and it’s not as simple to merely fill in a form and off you go.

What any adviser needs to do if they are looking at a transfer is justify it, and this means that you cannot just move a pension to get a commission and then walk away once you have the money. What we need to do, is show the return that you are getting from your existing pension, and then we need to show what kind of return you would get from what is being proposed, and only if the proposal is greater than the existing – can a transfer be done. So, if you are an individual out there and you are thinking of moving your pension, then take a minute and just check that you are supposed to be getting a better return. If you aren’t then you shouldn’t be moving it.

If you are looking to move a defined benefit pension (DB), then the rules are slightly different in that any move needs to suit a person’s finances better, and if it doesn’t – then no move should happen. The one additional constraint about moving DB pensions is that they can only be moved prior to retiring, and if someone wants it moved to access the tax-free cash, or change the beneficiaries for example, – then it should not be moved.

I have had a number of people approach me and they have a variety of reasons – but by and large I need to ignore what the client wants and work to FCA rules. Bear in mind that a pension is for retirement – and that’s why we would only be allowed to move a DB pension if someone is about to retire. No other time. I have had people telling me that they would like to use the tax-free cash for house refurbishments, or to go on holiday – and they are not an allowable reason. I have had a few people come to me and tell me that they have a large fund, and because the transfer value offered is really good – they want to move it now before this is potentially reduced, but guess what – that’s not allowed either.

We can only move a DB pension when a person is 55 and over, and is within 12 – 18 months of retirement. A DC pension can be moved at any time once you do the analysis of returns.

This logic is all meant to protect people, more often enough from themselves to be honest, and to get people to use a pension IN retirement. No other time.

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