Why professional advice matters if you’re thinking of transferring a pension

Many pension schemes, often older ones, come with valuable benefits that may not be immediately obvious, including:

• Guaranteed annuity rates (GARs). These provide a fixed income for life, often at rates more generous than those available on the open market today
• Inflation-linked increases. This feature ensures your pension income increases in line with inflation, helping to preserve the purchasing power of your income throughout retirement
• Enhanced tax-free cash allowances. Some legacy pension schemes allow you to take a larger portion of your pension as a tax-free lump sum, exceeding the standard 25% limit available from most modern pensions (tax treatment may change)
• Employment benefits. If the pension is an employer-related plan, check if the employer will cease to pay in benefits if it is transferred elsewhere 

Without expert analysis, these benefits can be overlooked or misunderstood. A financial adviser can help identify what’s at stake for both older and newer schemes, including additional aspects such as exit fees and time out of the market when the plan is in the process of being transferred, and whether transferring your pension would mean potentially losing out on long-term value.

Defined benefit (DB) pensions, often referred to as final salary pension schemes, are particularly complex. Although they offer guaranteed income for life, they typically only allow benefits to pass to a husband, wife or civil partner upon death. In contrast, modern pension arrangements can offer more flexible legacy planning options. That being said, the rules surrounding the inheritance tax (IHT) treatment of pensions is changing and the need to move out of a DB scheme for estate planning purposes will soon become redundant.

Transferring out of a DB pension scheme is not usually advisable and is heavily regulated. Only certain advisers are qualified to provide this type of advice, but their guidance ensures that any decision to transfer is made with full awareness of the trade-offs involved.

One of the main reasons people consider transferring a pension is to gain more control both when saving into the plan and when taking an income in retirement. Modern pensions, such as self-invested personal pensions (SIPPs), offer:

• Greater investment choices
• Flexible drawdown options
• The ability to nominate multiple beneficiaries

These features can be particularly useful for retirement planning and estate management. However, they are not suitable for everyone and also come with increased responsibility and complexity and may be more expensive. Also, it’s important to remember that from April 2027, pensions will fall inside your estate on death for IHT purposes  (legislation surrounding this proposal from the 2024 Autumn Budget is yet to be finalised and could change). A financial adviser can help tailor a pension strategy that aligns with your legacy plans, retirement goals and attitude towards risk.

Please bear in mind that SIPPs are a form of investment and you may receive back less than you pay in.  

Some people decide to transfer a pension scheme to reduce costs but cheaper isn’t always better. Low-cost schemes may lack flexibility or be invested in default lifestyle funds that don’t align with your retirement timeline or goals.

Professional financial planning advice helps ensure that any cost savings don’t come at the expense of performance or suitability. Wealth management advisers can also recommend bespoke investment strategies that may offer better long-term outcomes, even if they come with higher upfront costs.

Transferring a pension isn’t a one-time decision. Instead, it’s part of a broader retirement strategy. A financial planner can provide ongoing support, helping you adapt your plan as your circumstances change. Whether it’s a change in retirement age, a divorce, an inheritance or market volatility, having a trusted adviser ensures your pension remains aligned with your life goals.

Transferring a pension can unlock flexibility and improve retirement outcomes but only when done with a clear understanding of the risks and benefits involved. Professional financial advice is not just a safeguard. It’s a strategic investment in your future.

Before making any decisions, speak to Evelyn Partners, who can help you make informed, confident choices about what’s next for your pension and retirement plans.