Five questions to ask before transferring a pension

Most pension transfers are unremarkable. An old workplace pot from three jobs ago gets moved somewhere cheaper and better run, and the saver is modestly better off. Some transfers, though, destroy value that cannot be bought back at any price. The difference is almost never visible from the outside, which is why it is worth being systematic.

1. What exactly am I giving up?

This is the question that matters most, and the one most often skipped. Older pensions sometimes carry features that modern contracts simply do not offer.

• Guaranteed annuity rates. Some policies sold decades ago promise an income rate far above anything available today. Transferring normally forfeits it.
• Guaranteed minimum pension. A promised minimum level of income, with its own rules.
• Protected tax-free cash. A small number of older schemes allow more than the standard quarter to be taken tax free.
• Protected pension age. A right to take benefits earlier than the normal minimum age.
• Defined benefit promises. An income for life, usually with inflation increases and a spouse’s pension.

2. What does it actually cost, on both sides?

Charges are the one factor you can control with certainty, and over decades they compound heavily. But comparing a single headline figure is misleading. You need the total.

• The platform or provider charge.
• The fund or investment charges underneath it.
• Any adviser fee, initial and ongoing.
• Transaction costs within the funds.

Then look at the leaving side. Some older contracts carry an exit penalty, occasionally a significant one, though caps apply to many contracts for savers over a certain age. If the new arrangement is cheaper, work out how long it takes to recover any penalty — if the answer is a decade, that is a real argument against moving.

3. Is this solving a problem I actually have?

Consolidation is frequently sold on tidiness. Tidiness is pleasant but it is not, on its own, a financial benefit. Ask what the transfer genuinely achieves:

• Lower overall charges, by a margin that matters.
• Access to investments the old scheme does not offer.
• Flexible access the old scheme cannot provide — some older contracts still only offer an annuity.
• A simpler estate position, with up-to-date beneficiary nominations.
• Genuinely better administration, if the current provider is slow or unreliable.

If none of these applies, the honest answer may be to leave it where it is. Doing nothing is a legitimate decision and costs nothing.

4. How is the money invested now, and how would it be invested after?

Investment approach usually has more effect on the eventual outcome than the choice of provider. Many old workplace pensions sit in a default fund with a lifestyling strategy that automatically shifts towards lower-risk assets as a set retirement date approaches.

That matters because the target date may be wrong. If a scheme is de-risking towards an assumed retirement age of 65 and you intend to work to 70, the strategy may be moving you out of growth assets years too early. Equally, if you intend to take an income gradually over thirty years rather than buy an annuity on day one, the conventional glide path may not suit you at all.

5. Is the timing being driven by me, or by someone else?

Pensions attract pressure. If you are being hurried — a deadline, a limited offer, an unsolicited call, a free review that arrives out of nowhere — that urgency is a reason to slow down, not to act.

Legitimate transfers are never urgent. The one genuine exception is a defined benefit transfer value, which is normally guaranteed for a limited period, typically three months. Even then the deadline applies to that particular quotation, not to the decision itself, and a new value can be requested later.

A reasonable order of work

1. Request a statement for each pension, and ask the provider in writing whether the policy carries any guarantees or penalties.
2. Write down the total charges on both sides.
3. Decide what you want the money to do, and when.
4. Take regulated advice if there are safeguarded benefits, or if the sums are large enough that an error would hurt.
5. Only then move anything.