UK Pension Transfer: Move Your Pension to a Better Deal

Over your working life, you may accumulate several pension pots with different employers. Some may be charging high fees. Some may be in underperforming funds. Others may simply be forgotten about. A pension transfer lets you move your money to a better deal — but it is not always the right move. This guide explains when transferring makes sense, when it does not, and how to do it properly.

Why Transfer Your Pension?

There are several good reasons to transfer a pension:

• Lower fees: Older pension schemes can charge 1% or more per year in management fees. Modern SIPPs and platforms charge as little as 0.15-0.40%. Over decades, this difference is enormous.
• Better investment choice: Many older workplace pensions restrict you to a small list of funds. A SIPP lets you invest in tracker funds, ETFs, investment trusts, individual shares, and more.
• Better performance: If your current pension is in a poorly performing fund or an overpriced managed fund, moving to a low-cost global index fund could significantly improve your returns.
• Consolidation: Having one pension pot instead of five or six makes it easier to track your retirement savings, manage your investments, and reduce paperwork.
• More flexibility at retirement: A SIPP gives you full control over how you draw your pension — drawdown, lump sums, or a combination.

Types of Pension: What You Can and Cannot Transfer

Defined Contribution (Money Purchase)

This is the most common type of pension today. Both you and your employer contribute to a pot that is invested. You can transfer a defined contribution pension to another defined contribution scheme, such as a SIPP.

Most workplace pensions, stakeholder pensions, and personal pensions fall into this category. They are generally straightforward to transfer.

Defined Benefit (Final Salary or Career Average)

Defined benefit pensions promise you a guaranteed income in retirement, usually based on your salary and years of service. These are increasingly rare outside the public sector, but millions of people still have them.

You can usually transfer a defined benefit pension, but you almost certainly should not do so without taking professional financial advice. The reasons:

• A final salary pension provides a guaranteed, inflation-linked income for life — something no investment can replicate.
• The transfer value often looks attractive, but it is calculated based on actuarial assumptions and does not reflect the true value of the guaranteed income.
• You would be giving up a guaranteed income for an investment with no guarantees — and you could run out of money in retirement.
• The Financial Conduct Authority (FCA) requires you to take advice from a qualified financial adviser before transferring a defined benefit pension worth £30,000 or more.

Pension Types at a Glance

The Transfer Process

Transferring a defined contribution pension typically follows these steps:

1. Choose Your New Provider

Decide where you want the money to go. A low-cost SIPP from providers such as Vanguard, Hargreaves Lansdown, Interactive Investor, or AJ Bell is a popular choice. Compare:

• Platform fees (annual percentage or flat fee)
• Fund range (does the platform offer the funds you want?)
• Drawdown options (how flexible is it at retirement?)
• Customer service (check reviews and ratings)

2. Contact Your Old Provider

Request a transfer. Most providers have a transfer form or an online process. You will need:

• Your pension policy number or scheme reference
• Details of your new provider (scheme name and transfer details)
• Your personal details (name, date of birth, National Insurance number)

3. Get Your Transfer Value

Your old provider will send you a transfer value statement. This shows the current value of your pension and any charges or adjustments that apply. Read this carefully before proceeding.

4. Apply to Your New Provider

Your new provider will handle most of the transfer for you. You provide the details of your old pension, and they request the transfer on your behalf.

5. Wait for Completion

The transfer typically takes 4 to 6 weeks, though some providers are faster than others. If there are complications — such as exit fees, guarantees, or with-profits adjustments — it can take longer.

Transfer Value: What to Watch For

When you request a transfer value, it is not always as simple as moving the full pot. Several factors can reduce the amount you receive:

Exit Fees

Some older pension schemes charge an exit fee when you transfer out. These can range from a small administrative charge to several percentage points of your fund. Since 2017, the FCA has capped exit fees at 1% for pension pots in schemes entered into before 2017, but older pots may still attract higher charges.

Market Value Adjustment (With-Profits Pensions)

If you have a with-profits pension, your transfer value may include a Market Value Adjustment (MVA). This is a reduction applied when stock markets have fallen and the insurer needs to protect the fund for remaining members. An MVA can reduce your transfer value by 10-30% or more.

Guaranteed Annuity Rates (GARs)

Some older pensions come with Guaranteed Annuity Rates, which promise a minimum annuity rate when you retire. If you transfer out, you lose these guarantees. In most cases, modern drawdown is more flexible, but it is worth checking the value of what you are giving up.

Protected Tax-Free Cash

Some pensions allow you to take more than 25% of your pot as tax-free cash. If you have a protected tax-free cash entitlement, transferring may cause you to lose it. Check with your current provider before transferring.

Old Pensions: What to Do With Forgotten Pots

The average UK worker will have 11 different jobs over their career, which means potentially 11 different pension pots. Many of these are forgotten about entirely.

Final Salary Pensions: Leave Them Alone

If you have a final salary pension from a previous employer, it is almost always best to leave it where it is. The guaranteed income, inflation protection, and employer funding make it extremely valuable. The transfer value may look like a large sum, but it does not reflect the true worth of a guaranteed income for 20-30 years.

Defined Contribution Pensions: Consider Consolidating

If you have several small defined contribution pensions from previous employers, consolidating them into a single SIPP can:

• Reduce total fees (many old pensions charge 0.75-1.5% per year)
• Give you a clearer picture of your total retirement savings
• Allow you to invest in a single, well-diversified portfolio
• Make drawdown simpler when you retire

Finding Lost Pensions

If you are not sure where your old pensions are, use the free government services:

• Pension Tracing Service: Search for lost pensions at pension-tracker.service.gov.uk
• MoneyHelper Pension Tracer: Available at moneyhelper.org.uk/pension-tracker

You will need your National Insurance number and details of previous employers. The service will tell you which provider holds your pension so you can contact them directly.

SIPP Transfer: The Most Flexible Option

A Self-Invested Personal Pension (SIPP) is the most flexible type of pension in the UK. It allows you to:

• Hold virtually any investment: funds, ETFs, investment trusts, individual shares, bonds, and commercial property
• Choose your own investments rather than relying on a default fund
• Access your pension flexibly from age 55 (57 from 2028) through drawdown
• Consolidate multiple pensions into one place
• Control when and how you take your money

Popular SIPP Providers

For most people consolidating pension pots, a low-cost platform like Vanguard or AJ Bell offers the best combination of low fees and sufficient fund choice.

Workplace Pension: Transferring When You Leave

When you leave an employer, your workplace pension does not disappear. You have several options:

1. Leave it where it is: The pension stays with your old employer’s scheme. No action needed, but you may forget about it.
2. Transfer to your new employer’s scheme: Some employers allow this, but it is not always possible and the new scheme may not be better.
3. Transfer to a SIPP: This is usually the best option for flexibility and lower fees.
4. Combine with a personal pension: If you have a separate personal pension, you can merge them.

Important: If you transfer a workplace pension while you are still employed, you may lose employer contributions. Always check before transferring an active pension.

Worked Example: Consolidating Three Old Pensions

The Scenario

Sarah is 40 years old and has accumulated three pensions from previous employers:

Sarah decides to transfer all three into a Vanguard SIPP, investing in the Vanguard FTSE Global All-Cap Index Fund with an ongoing charge of 0.23%.

Fee Savings

Growth Over 20 Years

Assuming 7% annual growth and reinvested dividends:

That £50,000 difference comes entirely from the lower fees — Sarah has not invested an extra penny. She simply moved her money to a cheaper provider and a better fund.

What Sarah Gains

• £630 per year in fee savings
• £50,000 more by age 60 (from fee savings alone)
• One simple dashboard showing all her pension savings
• Full control over her investment choice
• Flexible drawdown options when she retires

Tips for Pension Transfers

1. Use the Pension Tracing Service to find old pensions you may have forgotten about
2. Compare fees before transferring — even small differences compound into large sums over decades
3. Never transfer a final salary pension without taking professional financial advice — the guaranteed income is usually too valuable to give up
4. Check for exit fees, GARs, and protected tax-free cash before you transfer
5. Consider consolidating for simplicity — one pot is easier to manage than five
6. Seek financial advice for large transfers — if your pension is worth £100,000 or more, professional advice can pay for itself
7. Don’t rush — take time to compare providers and understand what you are giving up
8. Check your new provider’s investment range — make sure they offer the funds you want before transferring

References

• MoneyHelper — Pension Transfers
• The Pensions Regulator
• GOV.UK — Pension Types and How to Check
• Pension Tracing Service
• FCA — Pension Transfer Advice