DIFFERENT TYPES OF PENSION AND HOW TO TRANSFER THE PLAIN ENGLISH GUIDE TO0121 355 4455 | oaklandswealth.com DIFFERENT TYPES OF PENSIONS – THE FACTS THERE ARE 3 MAIN TYPES OF PENSION: • Defined Contribution – builds up a pension pot based on how much money has been paid in • Defined Benefit – guaranteed pension income based on your salary and how long you’ve worked for your company. • State Pension from the Government – based on your National Insurance contributions DEFINED CONTRIBUTION These are also called ‘Money Purchase’ pensions. You can set up your own Personal Pension, or your employer may set up a Workplace Pension (these are often called Group Personal Pensions). Like a savings pot, any money paid in is invested by the pension provider. The amount you get out depends on how much was paid in and how the investments have performed. You decide how to take your money; by lump sums or regular income. The value of these pensions can go up or down depending on investment performance. DEFINED BENEFIT These are also called ‘Final Salary’ or ‘Career Average’ pensions and are usually set up by employers. When you retire you will get an income based on your salary, how long you’ve worked for your employer and a calculation made under the rules of your pension scheme. The pension income in guaranteed for the rest your life and will usually increase each year in line with inflation. THE STATE PENSION This is the Government pension that you are entitled to when you reach State Pension Age (determined by your date of birth). The amount of pension you get is based on your National Insurance contributions. If you reached State Pension age on or after 6 April 2016 you’ll receive the new State Pension payment of up to £168.60 a week. If you reached State Pension age earlier, the most you can currently get from the basic State Pension is £129.20 a week. (Figures at December 2018).TRANSFERING PENSIONS TRANSFERRING PENSIONS You may consider transferring your pensions to a different provider if: • your current provider doesn’t allow you to take your funds in the way you want • you want to combine various pensions to simplify your pensions • you want a wider range of investment options or to review the fees you pay • you want a higher income from your pension • you move abroad and want your pension to be in a scheme in that country TRANSFER VALUE This is the amount your pension would be worth if you moved to a different provider, and may be different from the current value. If there is a difference between the current and transfer values of your pension, you should speak with your pension provider to confirm the reason. For example, there may be an ‘early exit fee’ for transferring. COMBINING PENSION POTS Through your working life, you may have paid into several Defined Contribution pension pots. Combining your pensions could reduce the fees you pay and make it easier to manage your money. You need to check if you’ll: • be charged to transfer • lose any special features, e.g. protected tax free cash or a guaranteed annuity rate Pension providers may have different rules on combining pensions, so you will need to speak to all your pension providers before you make any decision.HOW TO TRANSFER A PENSION If you are considering transferring your pension, you should speak with your current provider first, they will be able to answer the following questions: 1. Are there any restrictions on transferring my pension? 2. What are the “current” and “transfer” values? 3. Are there any fees for transferring? 4. Will I lose the right to take out my money at a certain age? This is called a ‘protected pension age’. 5. Will I lose any special features, eg a guaranteed annuity rate? 6. Will I lose the right to take a tax-free lump sum of more than 25% of my pension? This is called a ‘protected tax-free sum’. You then need to decide upon a new provider to transfer your pension to – or you can transfer into one of your existing pensions. You should ask the new provider the following questions: 1. How do I apply for the transfer and what forms do I need? 2. Are there any fees for transferring in, eg set-up fees? 3. Do I have to make regular payments into the new pension? 4. What investment options do you offer? 5. What options will I have when I want to take my money out? If you transfer to a non-registered UK pension scheme or ‘unrecognised’ overseas scheme you’ll pay tax on the transfer. You may need to get financial advice to transfer. GETTING FINANCIAL ADVICE You are legally required to get financial advice if you want to transfer from a: • Defined Benefit pension worth more than £30,000 • Defined Contribution pension worth more than £30,000 with a guarantee about what you’ll be paid when you retire (eg a Guaranteed Annuity Rate) 0121 355 4455 | oaklandswealth.com DEFINED BENEFIT PENSIONS If you have a Final Salary or Career Average pension, and wish to transfer it, you would need do so to a Defined Contribution pension. Your provider will give you a “Cash Transfer Value”. If this is a “Guaranteed Transfer Value” it will be valid for three months. You are usually only entitled to one free guaranteed transfer value per year. If you transfer to a Defined Contribution pension, the value of your defined benefit pension will be transferred as cash and will then be invested. Think very carefully before you decide to do this – you would be giving up a fixed guaranteed income for a less certain one and it’s possible you’ll be worse off. Finally, please consider that not all defined benefit pensions allow you to transfer out – you will need to ask your scheme administrator about the options they offer. If you have pensions or other investments worth more than £500,000 then do come and have a chat with us. We’re always here to help, we never charge for meetings, and people say the office coffee’s pretty good too. We look forward to chatting with you soon. Simply call us on 0121 355 4455 or email us on appointments@oaklandswealth.com Oaklands Wealth Management Ltd. 12A Duke Street, Sutton Coldfield, West Midlands B72 1RJ 0121 355 4455 | oaklandswealth.com Authorised & Regulated by the Financial Conduct Authority (FCA). Firm Reference Number 432451Oaklands Wealth Management Ltd is Authorised and Regulated by the Financial Conduct Authority. FCA No. 432451 Company Registration No. 05073585 VAT Registration No. 974501021 DISCLAIMER: Please note that no statement within this guide should be construed as giving investment advice within or outside the UK. Information contained herein is intended as general guidance only and you should seek the advice of an Independent Financial Adviser, accountant, or tax adviser on your own particular personal circumstances. The author and Oaklands Wealth Management Ltd cannot accept any responsibility or liability for loss which may arise from reliance on such information contained within this guide. Any references to taxation are based on our understanding of current legislation and HM Revenue and Customs practice, which can change.Next >