To transfer a pension or not to transfer? That is the question

Society today has moved away from the 'job for life' mentality of past generations and as such our pension planning has had to evolve to keep up. It is extremely rare for today's workforce to accrue the required 30 or 40 years to gain maximum benefits with an old style employee pension scheme and instead we accept that we may have a patchwork of different pensions from various jobs that will ultimately pay towards our lifestyle in retirement.

If you have left full-time employment to spread your wings as a Contractor, then you will almost certainly have left a pension behind and this is then known as a deferred or frozen pension. Chances are that you can no longer invest in this pension but it will continue to be managed by your old employer until you are ready to access the funds.

If you have a final salary scheme you are reliant on the financial health of the employer to ensure that liabilities to current and future pensioners are matched by contributions from remaining employees and the company. With a money purchase, personal or stakeholder pension you are less tied to the financial stability of the former employer and more affected by your individual fund size and the investment returns on this money.

Whilst one option is to leave these pensions to grow with your old employer, it may be beneficial to transfer this pot of money into a new plan such as a personal pension where you could have far more control of how your money is managed. In fact, many employers will offer an incentive for you to move your investment as they will want to get rid of the burden of managing your pension for you. These incentives can range from 'top-up's' on your pension value to 'cash back' style payments in order to seduce you into moving.

Is an employee pension transfer right for you?
You have the right to transfer the cash equivalent (or transfer value) of your deferred pension into a new or pre-existing pension plan, however it can be difficult to calculate how much this pot is worth and whether or not you should transfer it at all. In order to help you make the right choice for your individual circumstances it is worth keeping the following in mind:

Seek expert advice - The decision to transfer a pension is not one that should be taken lightly as your retirement plans hinge on the performance of your funds. It is therefore wise to seek impartial advice from an Independent Financial Advisor before making a decision.

Don't get drawn in by 'cash back' and other offers - It can be easy to fall for the bribery of an employer desperate to reduce his pension liabilities and the desire for some extra spending money can sometimes be too strong to resist, but ultimately you you may end up making a decision to transfer when it isn't right for you.

Don't risk what you can't afford to lose - If you decide to transfer, your deferred pension becomes yours to control but this involves a higher level of risk. With the right advice, your pension has the opportunity to increase but equally, it can fall in value. It is important to assess your attitude to risk before moving out of an old employee pension and also when you come to choose your funds if you do transfer.

How can we help?
As Independent Financial Advisors, we at ContractorFinancials are able to offer impartial financial advice to Contractors on all your Pension and Investment needs. Together with our colleagues at O&M Transfer, we can advise you on the best option for your deferment pension, taking into account your personal circumstances and retirement plans. There are a number of options to choose from including:

• Keeping your existing deferred pension with your previous employer.
• Transferring the funds to your new company pension scheme.
• Investing the funds into a Personal Pension Plan.
• Transferring the deferred pension to a Section 32 Buy Out Policy.

In order for us to advise you on which route to take, we must first gain your authorisation to contact your old pension provider. Once we have collected the relevant information from them we are then able to research the most competitive pension schemes for you and make a recommendation.

We understand that pensions are often seen as one of the more complicated areas in finance and our aim is to present the information in a relevant, jargon free format that will enable you to weigh up the options and decide which route is best for you. We can help via email, post, telephone or face to face meetings and you will be given a friendly, dedicated advisor to answer any case specific questions you may have along the way.

Return to Articles page