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Pension Transfers - Something For You?

Jul 21, 2008
By their very nature, pension schemes are long term investments. The earlier you start to build up your pension, the greater the rewards when you finally come to retire. Although they are naturally designed to run over very many years of your working life, however, this does not mean to say that there are times when it might be useful to consider transferring from one scheme to another, more attractive and profitable scheme. Pension transfers make that possible.

The main reason for considering a pension transfer is because times change. As times change, so new financial products come on the market to offer more attractive options then their predecessors. This is certainly true of UK pensions, where until seven or eight years ago, most of those sold came with relatively expensive monthly fees together with equally high yearly management charges. Clearly, the more you are paying in such administrative costs, the less you are able to invest and the smaller your eventual pension fund.

Competition in the marketplace and a growth in the number of plans currently available means that the cost of today's new pension schemes are considerably more attractive, as well as being somewhat more flexible.

Although these are very good reasons for reviewing your present pension arrangements - especially if they have been running for a number of years - and considering the advantages of a pension transfer. Nevertheless, this is not something to be done lightly, since pension matters can become quite complicated, and the services of an independent financial adviser could well pay dividends. If you are a member of an older-style scheme, for example, you might find yourself quite heavily penalised for transferring the fund's value to another scheme. This can make the true costs and benefits of a pension transfer more difficult to calculate.

One of the first things your independent financial adviser is likely to need - and something that will give you a preliminary indication of the likely benefits of any transfer - is a "transfer value analysis" of your current pension fund. Although this will help you compare the financial benefits of alternative schemes, you should also consider whether any new pension scheme has built into it the flexibility you need. Will you want to consider retiring early, for example, or do you foresee future job changes when you will want to take the pension plan with you and continue making contributions to it.

Indeed, it is when changing jobs that many people give thought to pension transfers. Although this is an understandable and something of a natural course of events, it is nevertheless also sensible to discuss any such transfer with the pensions administrator at the job you are leaving. It might be possible, for example, to stick with the scheme you are already in and continue to make contributions into that scheme, rather than transfer. If you are content with the current scheme and it compares favourably with others on the market, then clearly you will not want to pursue the option of transferring.

Making a meaningful and accurate comparison between different pension schemes is by no means straight forward and one in which the services of an independent financial adviser are almost certainly going to help considerably.
About the Author
Sean Horton is a Director of Enhanced Wealth, a whole of market mortgage broker and IFA specialising in mortgage advice and the associated areas of pension transfers, income protection, mortgage protection, and life cover.
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