Pension transfer: defined contribution

A defined contribution pension means you build up a fund that you can access after the age of 55 and use however you want (depending on what your scheme permits). A defined contribution pension may be either in an occupational (work) pension scheme or a personal pension scheme.

Considering transferring to a defined contribution pension? If you are transferring from a defined benefit pension, or are not sure what type of pension you have, read about the risks of transferring first

There may be benefits to switching from one defined contribution scheme to another, but it depends on your individual circumstances and is a complex financial decision. So you should first get impartial advice from a firm authorised to give advice on pensions.

Our rules require firms or pension transfer advisers:

  • To have specific permission for advising on pension transfers and opt-outs.
  • To follow our training and competence rules.
  • Have the appropriate qualifications.

Potential benefits of pension switching

  • Combining a number of pension funds together in one place.
  • Moving to a scheme that allows more flexible access.
  • Reduced fees.
  • Switching to a scheme that better suits your needs.
  • Stopping ‘trail commission’, which is an annual payment to the financial adviser who set up your pension and which could eat into your pension savings (switching providers should cut the trail commission).

Potential risks of pension switching

  • A new scheme may have higher costs but no more benefits than your existing scheme.
  • You might lose valuable benefits offered by your current pension such as death benefits or a guaranteed annuity rate (GAR) option.
  • Some pensions apply a penalty when you transfer, which can eat into any cost savings.
  • It may be possible, and more cost-effective, to transfer all your pensions into one of your existing pensions rather set up a new one.
  • If you change your mind about transferring, it is worth noting that although pension transfers usually offer a 30-day cancellation period, this does not mean your old pension scheme has to take your money back – it may refuse.
  • Some pension providers offer bonuses or reduced charges if you stay with them a long time. If you leave, you will miss out on these bonuses.