Pension transfers explained Advantages of switching pension provider
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.
Bringing together smaller funds can reduce charges: Prudential, Scottish Life, Standard Life and Zurich, for example, all offer lower fees for those with bigger pots. 27% of Which? members who have switched provider did so to consolidate smaller funds.
Stop trail commission
When you open a pension account your adviser will 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.
Fees, legislation and your investment needs all change over time, so it may be worth switching to a provider with lower charges or to a more suitable product. One in ten Which? members who have switched did so to reduce fees, while a similar number wanted to reduce their investment risk. One in five wanted more control over their investment, for example through a Self-Invested Personal Pension (Sipp).
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.
Once you are ready to use your money-purchase pension fund to buy an annuity, however, it's vital to shop around for the best deal under the Open Market Option, including the consideration of enhanced annuities, for example, if you are in poor health.