Seven key questions to ask before you switch your pension

Everyone wants their hard earned money to be placed where it is going to have the best possible chance of maximising in order to create a good income in retirement. Switching out of older pensions or consolidating  your pension pots into simpler, more modern products might help you benefit from increased flexibility, wider investment choice and cost savings, but whether it is right for you will also largely depend on your individual circumstances and objectives. Here are some key points to consider before switching.
Please note that the information on this page relates only to pension switches for defined contribution type pension schemes (DC pensions), personal pensions, stakeholder pensions, SIPPs (self invested personal pensions) and workplace pensions. For information on pension transfers – defined benefit pension transfers (DB pension transfers), also known as final salary pension transfers, please see the links at the bottom of the page.

1. How do costs compare to my current pension?

Often older pension schemes charge higher fees than the modern alternatives offered today, but this might not always be the case. If a new pension is going to cost more, you should find out whether there is a good reason for it, and whether this might benefit you or not. Your pension provider or financial adviser will give you all the information on fees.

2. Should I consolidate all my pension pots into one?

One might argue that keeping all your pension pots in one place should simplify matters making it easier to keep track of them, and this may well be a good enough reason to consolidate. However ongoing fees for this might work out higher and should be taken into consideration along with any other potential benefits or drawbacks to the new scheme.

3.  Will I lose any benefits?

You may have valuable benefits with your current pension which you would stand to lose if you switch. For example, you may have increased death benefits, a higher tax-free lump sum, provision of a pension for your partner after you die, or a guaranteed income for life with a GAR (Guaranteed Annuity Rate) option.
In order to make you fully aware of what you are giving up your pension switch will have to be approved by a regulated financial adviser if your transfer value is over £30,000 and you have a Guaranteed Annuity Rate or any other protected benefits.

4. Will investments in the new pension scheme be right for the amount
of risk I’m prepared to take?

Your attitude to risk is going to depend largely upon your current circumstances and where you are on your retirement journey. It’s important your investment strategy and pension funds match your current attitude to risk, but also to understand that your attitude to risk is likely change the closer to retirement you are.

5. Are there any charges if I switch?

There may be an exit fee or charge for moving your pension away from your old provider. This would have been agreed upon when you enroled in the scheme and will most likely be dependant on the size of your pension fund, your age, and your pension provider. There may also be a set-up fee for your new pension though this may be incorporated into your ongoing fees by your new provider.
It is wise to check the details and charges when you sign up for a new pension or are considering switching an existing one. But just as important to remember, even if you are having to pay fees, provided the pension you’re switching into can perform as well as you expect*, you’ll still be better off.
* There are no guarantees as to how funds will perform.

6. Will I need financial advice?

If the value of your fund is higher than £30,000 and has a guaranteed annuity rate or any other protected benefits on retirement, you will be required to seek advice from a pensions expert before the switch can go ahead.

7. Will I need ongoing advice?

It is important to review your pension regularly, even if you decide not to switch. Individual personal circumstances can change over time, as can attitude to risk, especially when approaching retirement; your investment strategy should change accordingly. If you feel you have enough knowledge and experience of investing and are confident taking decisions that will affect how much income you have in retirement, then you do not necessarily need ongoing financial advice. If you have little or no investing experience and would not be confident in reviewing and making decisions that will affect your financial future, it is a good idea to take advice from a pensions expert.

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    For information on pension transfers – defined benefit pension transfers (DB pension transfers), otherwise known as final salary pension transfers, please visit one of these pages:
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