Pension transfers explained Advantages of switching pension provider

Pension transfers advantages

Switching smaller pension pots into one new one could save you money

Many of us have worked for a number of different employers, joining a new company pension scheme each time we move jobs. You may also have a personal pension account separate from your employer.

Bringing together all of your pension funds in one place could be a good idea, cutting the fees you pay and making it easier to keep track of your retirement investments.

This guide explains the benefits of switching your pension, and how you could cut the costs, meaning more money for your retirement. Bear in mind that switching your pension can come with some significant risks too. 

Go further: My retirement: what do I need to know? - a comprehensive guide  

Consolidation

This is the process of bringing together all of your smaller pensions into one pot, and can help you reduce charges.

Many pension providers offer lower fees for those with bigger pots. 

Go further: Should I consolidate my pensions? - understand the pros and cons in our guide

Stop trail commission

If you opened up a pension before January 2013 and your adviser was paid by commission, they would often receive an upfront lump sum, followed by annual 'trail' commission. This comes out of your pension fund, reducing the value of your pension pot when you reach retirement age.

Even if you have switched to a new adviser, your former adviser could still be receiving up to 1% of your fund each year. Switching provider should cut the trail commission link. 

Financial advisers are no longer allowed to be paid by commission for new investments. However, adviser may still charge you an annual fee - but they must be providing an ongoing advice service to you

Go further: Financial advice explained - find out more about how they new rules work 

Lower charges

Modern pension schemes tend to have lower charges than older ones. If you set up a personal pension before 2001 - before stakeholder pensions were introduced and charges in them were capped - you could be paying very high fees.

Transferring your pension could help you cut these costs significantly. Our guide to fund charges explains how high fees eat into your returns. 

Switching pension fund but not fund provider

As you approach your selected retirement age, you’ll probably want to protect the value of your investments against sharp drops in the stock market. 

Under a process known as lifestyling, assets are gradually transferred out of equities and into cash and fixed-interest investments as retirement approaches, in order to minimise the risk of last-minute stock market fluctuations wiping a chunk off your investment at the point you cash it in. 

Lifestyling is not an automatic option in most pension funds though, so you may have to decide yourself whether to change the make-up of your investment.

Switching to a different provider at this stage will probably be inappropriate, given the short time frame and the charges involved. However, most providers allow you to switch to lower-risk funds within your existing pension investments free of charge. Others allow a set number of fund transfers before applying a fee.

The pension changes mean that more people will opt for income drawdown, keeping their money invested once they convert their pension fund, which will lessen the need for lifestyling.

More on this... 

Last updated:

March 2016

Updated by:

Paul Davies

Which? Limited (registered in England and Wales number 00677665) is an Introducer Appointed Representative of Which? Financial Services Limited (registered in England and Wales number 07239342). Which? Financial Services Limited is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited. Registered office: 2 Marylebone Road, London NW1 4DF.