Pension Transfer Costs
Are you looking at transferring your UK pensions, but unsure as to what a pension transfer costs?
When moving abroad, one of your biggest concerns might be what happens to your retirement and pension pots. Often, people may have built up several different pensions with different employers over the course of their careers.
It can become increasingly difficult to manage these at the best of times – and becomes even harder when moving abroad for retirement. So what are your options? And what can pension transfer costs?
There is no requirement to transfer your UK pensions just because you’ve moved abroad. Your UK pensions will still remain invested and accessible from anywhere you move in the world. However, it could come with several difficulties. Firstly, trying to draw down an income from several different providers whilst being based abroad can become an administrative headache.
Not only that, but by leaving pensions in a ‘one-size fits all’ solution that employer schemes usually provide, there is no bespoke element to your retirement. Without ongoing and personalized active management, your retirement funds might not match your goals or attitude to risk.
Transfer & Consolidate
The other option would be to look to transfer your existing UK pensions into one manageable pot, that is easily accessible from abroad. The main benefit of this consolidation is the control that it gives you over your retirement.
By having everything visible in an online account, you can really plan for the future and ensure the investment portfolio matches your requirements; both now and in the future when you look to take an income.
Depending on the type of scheme you hold, transferring pensions can be time-consuming and expensive. Do you hold a defined benefit pension or defined contribution? Does your pension have protected rights or guarantees? These are the questions that need to be asked before looking to move your pensions as an expat.
Generally speaking, it makes more sense for expats to go down the route of transferring. However, it is always best to seek regulated and independent on these matters, as every situation is nuanced and has different aspects of planning involved.
What Does a UK Pension Transfer Cost?
Due to stringent regulation with UK pensions, transferring will always take some time and involves a lot of work. Usually, the process would start with signing a letter of authority. This allows your appointed financial adviser to contact the scheme on your behalf to find out information on your pension, such as the cost and what funds it is invested in. It’s important to note that the letter of authority is only for informational purposes, and doesn’t give authority to transfer any funds.
Schemes will usually take a couple of weeks to provide the requested information. Once received, your adviser can begin to create your suitability report, or ‘reasons why letter’. This comprehensive document details exactly why it is recommended (or not) to transfer your UK pensions.
It would also include the recommended portfolio and set up for your new pension. If you are happy with everything, you would then sign the discharge forms and the paperwork would be submitted, allowing the ceding scheme to transfer the funds to your new pension.
The cost of this can be anywhere between 1-5%, and will almost always depend on the value of the transfer. At Harrison Brook, we are committed to working on a transparent, fee-only basis.
Jane, 57, has recently moved to Spain, and plans to retire there. She has a defined contribution scheme worth £200,000, as well as a Defined Benefit scheme that will pay £8,000 per annum or a Cash Equivalent Transfer Value of £275,000.
So, Jane approaches a financial adviser to ascertain her options, as well as get a transfer report for her existing defined benefit scheme. The quote is for 2% of the total transfer value, and £2,500 for the UK Defined Benefit transfer report.
The defined contribution scheme is transferred into an International SIPP without issue – however, it has been advised that she does not transfer her UK Defined Benefit scheme. This is because Jane does not have other significant forms of guaranteed income, either in the form of other pensions or rental properties etc.
It would not be suitable advice to recommend a transfer, as she would be giving up her only guaranteed income for life in return for an investment that will be exposed to greater risk.
She will still have to pay the full £2,500 transfer report fee regardless, due to the recent FCA reforms and contingency charging.
In certain situations, she may also elect to go down as an ‘insistent client’, and go against the advice she receives. In this scenario, the transfer can still go ahead.
After careful consultation and further conversations with her adviser, Jane agrees that is doesn’t make sense to give up her only form of safe income, and chooses to leave her DB scheme as it is. In this scenario, Jane would incur the following pension transfer costs:
Defined Contribution Transfer of £200,000 at 2% = £4,000
Defined Benefit Pension Transfer Report = £2,500 (flat fee)
TOTAL COST = £6,500
Whenever considering any type of pension transfer, it has become increasingly important to seek regulated, independent advice. At Harrison Brook, we are proud of our independence and fee-based only model, ensuring our clients receive the best value for money.
Please do not hesitate to get in touch for a free consultation and see if we can help you with your financial plan.