Six reasons to switch your pension today

Esther Shaw / 16 November 2015

Have you ever considered transferring your pension to another scheme or provider? Here are six reasons people move their pensions and some things to consider first.

There are a whole host of reasons why people might want to transfer their pension before they reach retirement; some are looking for better fund performance, lower charges, or better death benefits; others are simply changing jobs.

But while transferring may sound appealing, you must go in with your eyes wide open and seek expert advice.

1. Moving to a new employer

When you leave one job to move to another one, you are treated as having left the workplace pension scheme, but do not lose the benefits you have accrued.

At this stage, you may decide that you want to transfer your pot to the scheme offered by your new workplace.

But if you are thinking about switching, it is important to do this for financial reasons – and not emotional – reasons. It’s crucial that you don’t transfer out of a first-rate scheme simply because you want to cut all links with an old employer. Make sure you research carefully before making the move.

Read our guide to switching pension providers.

2. Looking for better performance

Some people opt to switch their pension because they are in an underperforming scheme delivering poor – or non-existent – returns.

If your scheme is performing poorly, you may well want to move your money elsewhere.

But once again, you need to tread carefully, and ask yourself whether you are prepared to invest your pension pot in more risky funds to get a better return.

If you are approaching retirement age, you need to think particularly carefully before making such a decision. 

3. Seeking out lower charges

Others want to transfer their pension because their scheme comes with punitive charges which eat into their returns, leaving them with less money in retirement.

Find out how to review your pensions.

4. Wanting to access a wider range of funds

At the same time, switching your pension may sound like a good option if you want to access a wider range of funds than those offered by your current scheme.

5. Searching for better death benefits

If you feel the death benefits on offer with your current scheme do not match up those offered by more modern schemes, you may want to transfer your pension to a different scheme.

You might, for example, want to move your money into a scheme that allows one of your relatives to inherit your pension when you die, rather than simply spouses or dependents. The same might apply if you are not married to your long-term partner, but want them to inherit your pension once you’re gone.

6. Wanting to consolidate several pensions

As people change jobs more frequently during their working life, they often accumulate a number of small pensions along the way.

It can be hard keeping tracking of schemes, and difficult to really know how much your total retirement is worth.

For this reason, many savers want to clean up their finances by consolidating their pensions into one pot.

The good news is, there are plans afoot to introduce a “pot-follows-member” scheme next year which would automatically transfer pensions as workers move jobs into the new employer’s pension scheme.

Read our guide to tracing old pensions.

Think carefully before making the switch

As a word of warning, you need to be extremely careful before transferring out of certain schemes – including public sector schemes, such as the nurses or teachers’ scheme – as these offer extremely generous benefits which can be hard to replicate elsewhere.

Equally, if you are thinking about transferring your personal pension to another provider, you must check that the benefits are not outweighed by any exit penalties and entry charges.

Get advice

No matter what your reason or motivation is for wanting to switch your pension, the key is to do all the research you can to ensure you’re making the right decision.

And if you’re in any doubt at all, make sure you seek out expert advice.

The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.