What to consider when transferring pensions

(SIPP) that enables the holder to choose and manage investments made.

And, as many “old style” arrangements do not recognise the new rules, it is therefore necessary to transfer to an arrangement that does.

Then there are those transferring from defined benefit (DB) schemes, often known as final salary schemes, on the back of increased transfer values and the flexibility within a money purchase option.

The UK’s decision to leave the EU has sent gilt yields to historic lows, as a result pushing transfer values to record highs.

Analysis by Xafinity found that, following the referendum, UK ten-year gilt yields tumbled to below one per cent for the first time ever.

This automatically increased the value of DB transfers, which are calculated according to the cost of meeting liabilities – how much of today’s money it will cost the scheme to make good on promises to members. Of course none of this is simple. A number of elements require serious consideration, affected too by individual circumstances … which is where your adviser can help.

If there are exit penalties on your existing policy, they could cancel out the benefit of transferring to a new provider. Exit penalties can be thousands of pounds, so it’s worth checking if they apply.

Your existing pension fund may include valuable benefits such as guaranteed annuity rates (GARs), which could mean a higher annuity rate when you retire. Ask your provider if it offers a GAR.

If you’re thinking of transferring from a DB scheme to a personal pension, the investment risk switches from your employer to you, as could the scheme charges.

DB schemes provide a guaranteed pension and offer generous benefits to your spouse or partner on your death.

Some providers give bonuses to investors who stay with them (and make regular contributions). A new provider may not be able to match these offers.

Meanwhile, those retiring on health grounds could need to access their pensions earlier, prompting Aegon to urge that all individuals should have the choice of taking their State Pension from their early 60s, if at a reduced level.

Recent TUC research showed that one in eight people are too ill or disabled to work by state pension age.

General secretary Frances O’Grady said: “People should be able to retire in dignity with a decent pension when the time is right.

“We can’t expect the sick to wait longer to get a pension when they may need financial support more than ever.”

Aegon’s pensions director Steven Cameron added: “The inflexibility of the State Pension system is at odds with the Government’s wider ‘pension freedom’ agenda which allows individuals free access to private pensions from as early as age 55. As the State Pension age continues to rise, it’s important to free up State Pension access to allow individuals to fit their state as well as private pension around their personal circumstances.” So, much to consider. Trevor Law is managing director of Merito Financial Services, chartered financial planners,

based in Solihull. Email: tilaw@meritofs.com