Pros & cons of moving your pension

YOUR MONEY

A RECORD amount of cash was transferred between pension schemes in the first three months of this year – £10.6billion.

The figure has shot up from £7.5billion during the same period in 2017 and is the highest-ever amount transferred over a three-month period, according to figures from the Office for National Statistics.

Industry experts say the vast majority of this cash is likely to be people quitting final-salary (defined benefit) schemes offering guaranteed benefits and moving cash to more risky defined contribution schemes or SIPP (self-invested personal pensions), where individuals make their own investment decisions.

These types of pensions put money in the stock markets and other investments, and savers take on all the risk of making sure the pension lasts as long as they do.

Tom Selby, senior analyst at investment firm AJ Bell, said: “The stampede to quit guaranteed definedbenefit pension schemes shows no signs of slowing down.

“We have witnessed a perfect storm for DB transfers in the UK, with a combination of the attractiveness of the pension freedoms, higher transfer values and headlines about highprofile companies – most notably BHS and Carillion – going bust. All undoubtedly influence people’s decisions to exit.”

A big increase in transfers has been one of the unintended consequences of the pension freedoms introduced in April 2015 to give greater flexibility and choice over when and how savers use their pension savings.

While it’s right that people should have more control over their cash, pensions are complex and involve big sums.

Making a decision about how to access and spend nest eggs needs thorough researching and should be considered with caution as it will affect the rest of your financial life.

Access to big sums of money, often hundreds of thousands of pounds, offers rich pickings for crooks.

Scammers, conmen and unscrupulous financial advisers have been preying on people with pension pots, encouraging them to move cash into unregulated schemes, dodgy investments and rogue bank accounts.

Only this week fears emerged that eight of the largest pension schemes in the UK, including J Sainsbury and Lloyds Banking group, may be targeted by rogue advisers or scammers exploiting fears about the future viability of these schemes.

Every day, we hear yet more horror stories about people losing their life savings and being left without the means to fund their retirement.

Scam overseas property investments are rife. One is currently emerging where hundreds of people have lost an average £250,000 after being conned into moving pension savings from defined benefit schemes to self-invested personal pensions that included investments in US property.

Victims were persuaded to shift their funds after an unregulated adviser gave them free pensions reviews and promised returns of 15% over three years.

EXTREME CAUTION IS NEEDED

Here we show you what to look out for and talk to the experts about the pros and cons if you are considering moving your pension.

Final-salary pensions are what every worker would like – a golden handshake to see them comfortably through retirement with a guaranteed income for life.

The income they provide is based on earnings and length of service with an employer. Big companies such as Royal Mail and BT offered them as part of the staff benefits package.

Over the past decade, we’ve witnessed these schemes closing, or closing to new members, as employers struggle with the costs to service them.

Andrew Tully, pensions expert at Retirement Advantage, says: “Final salary pensions really are the gold standard for pension provision in the UK.

“If you have one of these schemes, then consider yourself one of the fortunate few. So always think very carefully before you consider transferring. More often than not it won’t be in your best interests to move.”

So why would so many people consider moving from the guarantee of an income for life to a pension where retirement income is dependent on how much you save and the performance of the stock market?

Mr Tully explains: “Transferring is rarely a good idea, but there are situations where it can work. This is a complex decision and the financial watchdog insists most people speak to a pension transfer specialist. Life-changing sums of money can be involved, and an adviser can help you decide if a transfer is in your best interests, taking your personal situation into account.” As the popularity to transfer pensions increases, we’ve begun to see firms advertising services to help people who have been encouraged to transfer their pension to a SIPP, with claims that if you feel you have been miss-sold, they can help you claim compensation.

It’s one of the biggest financial decisions you’ll make in your life

This is of course of little help if you have already been scammed into transferring into dodgy investments as you will probably never see your money again.

Mr Tully adds: “This is without doubt one of the, if not the, single biggest financial decision you can take in your lifetime. And there is no going back if you transfer and subsequently change your mind. Tread very carefully and do your own homework.”

PROS OF MOVING

You may have health conditions, which limit your life expectancy – transferring means you are giving up a guaranteed income for life, but you have complete control of your pension to use as you wish.

You may be single and therefore the automatic spouse income from the defined benefit pension simply isn’t relevant to you.

You want to control when you access your money, including the income, any lump sum, and how much tax you pay on income and tax on death.

Transfer values have been higher than historically due to economic conditions.

CONS OF MOVING

You are giving up a guaranteed income for life which will usually increase each year in line with the cost of living (unless you replace it with an escalating annuity).

You will need to seek proper regulated financial advice and that can be expensive (this applies to any transfer where your pension is valued at over £30,000).

You open yourself up to scammers and fraudsters who might encourage you to move for the wrong reasons or encourage you to invest in unregulated investments – and you could lose the lot.

The financial regulator and an influential working party of MPs are concerned about poor practice in the market and cases of inappropriate advice, so always take your time and choose your adviser with care.

ALARM BELLS SHOULD BE RINGING IF...

You get a cold call, text or email with an offer of a free pension review, no obligation consultations or guaranteed high investment returns from overseas schemes. Promises to unlock your pension before the age of 55. Promises of extra tax savings. Pressure to act quickly and being rushed to make a decision with a warning the deal is limited.

Being discouraged from seeking professional financial advice or talking to Pension Wise.

Contact from a firm or individual which is not on the Financial Conduct Authority Register (register.fca.org.uk).

If something sounds too good to be true, then it almost certainly will be. Take your time, speak to your family and, of course, find a good regulated financial adviser.

CHECK, DOUBLE CHECK AND GET HELP

Check the FCA Scamsmart warning list for known scams at: fca.org.uk/scamsmart/pensionreview-scams Use the Pension Advisory Service’s tool to help identify a potential scam: pensionwise.gov.uk/en/scams Get guidance on how to spot a scam from the Money Advice Service: moneyadviceservice.org.uk/ en/articles/how-to-spot-a-pensionscam Find a regulated independent financial adviser in your area: unbiased.co.uk If in doubt, check with the TPAS at pensionsadvisoryservice.org.uk or call 0300 123 1047. Or contact your current pension provider or Action Fraud on 0300 123 2040 or actionfraud.police.uk.