What is a deferred pension?
A deferred pension is a UK pension where you have stopped paying into the scheme, but you are not yet receiving a pension. Or that you have delayed claiming your pension, based on the premise that the longer you wait to claim, the more money you will receive in payments.
How do I defer my pension?
Your pension will automatically defer until you claim it, although, it’s important to inform your pension provider of any changes to your address, health or marital status as this can affect or delay your pension payout.
Can I transfer my deferred pension?
If your current pension provider doesn’t offer you the benefits or options that you desire, you can transfer your pension pot to another scheme.
Depending on the terms and conditions of your agreement, it may even be possible to transfer your pension after you’ve started to draw down retirement benefits.
Additionally, if your new pension scheme is outside of the UK, you may need to provide documentation that proves you have emigrated permanently.
Should I transfer my deferred pension?
As with any investments, there is a risk. If you transfer your pension to another scheme, the value of your investment can go down as well as up, meaning that there is a chance that you could lose money.
Additionally, your current pension scheme provider may charge you an exit fee.
However, if you defer your pension, there is a potential for your savings to continue growing as your money will be invested for longer.
In order to make your decision clearer, you will need to calculate how much your pension will potentially be worth in each scenario.
Things you need to know before you transfer
Ask your current pension provider the following questions before you transfer your deferred pension.
* Are there restrictions on which pensions you can transfer?
* What is the ‘transfer value’ of my pension?
* Are there any fees for transferring my pension and if so, how much?
* Will I lose the right to take out my money at a certain age?
* Will I lose any benefits?
* Will I lose the right to take a tax-free lump sum of more than 25% of my pension?
Calculate my deferred pension transfer value
Your transfer value, also known as a ‘cash-equivalent transfer value’ or ‘CETV’, is the amount your pension pot would be worth if you moved it to a different provider.
It is calculated using a number of variables which may include:
* Your age
* How close you are to retirement
* The investment strategy of the pension scheme you’re currently in
* Life expectancy
Calculating your transfer value can be difficult with so many variables to consider, especially if you are unsure about the current inflation rate or your scheme’s investment strategy.
Should I use a deferred pension transfer value calculator?
You may have come across deferred pension transfer value calculators online. These are designed to provide quick quotes which can be helpful for those looking for a rough guide or estimate.
Where can I transfer my deferred pension?
Your retirement income will depend largely on your pension, so before you transfer it, always seek advice from a financial expert.
Depending on your circumstances, you may be able to transfer your deferred pension to:
* A self-invested personal pension (SIPP)
* A new employer’s workplace pension scheme
* A personal pension scheme
* A stakeholder pension (SHP) scheme
Transferring a deferred pension to a SIPP
A SIPP, or self invested personal pension, offers a great opportunity for more control over how your pension fund is invested.
While it’s possible to transfer your deferred pension to a SIPP arrangement, rules for doing so differ greatly between providers and the kind of account which you can invest into.
Due to the varying rules from different pension providers and the costs involved in transferring pensions into a SIPP, it’s advisable to seek expert advice ahead of committing to a decision.
How to transfer a deferred pension plan
Transferring your pension can seem daunting but with the help of an experienced pensions expert, the process can be made a lot smoother.
Here are the steps to take if you are considering transferring:
* Find a pensions expert
* Have your pensions expert compare the market and check whether it’s in your best interest to transfer
* Find a new pension scheme that will accept the transfer of your pension
* Calculate your transfer value
* Inform your current provider that you want to switch
Your pensions advisor can also check your contract thoroughly for any fees or charges that you may incur.