To switch a pension plan means you want to transfer your scheme to a different pension service. This principle works in a way similar to how you switch bank accounts. A need may arise for you to switch pension schemes when your current plan is not working out well for you. The pension plan you choose today can determine the future of your financial security when you retire from your job. This means that when you stick with an unfavorable pension scheme, it can create troubles for you later on, with no way to get out of it again. So, to help you out here’s all that you need to know about pension transfer and combination in the United Kingdom.
It is possible to switch to any kind of pension
When you subscribe to private/employee pension schemes in the UK, you can always switch your plans when you want to. With that being said, you may have to be extra careful when you want to switch final salary company pensions. The reason is that these kinds of pension schemes usually have strings of guaranteed benefits attached to them. But what does that mean? Well, the rule here is that you can only enjoy the benefits as long as you stick with the scheme until your retirement. That means you risk losing your benefits when you want to switch to a different pension plan. Also, you are not allowed to switch away from unfunded pension schemes provided by the public sector to cover government workers such as police officers, teachers, health professionals, and the armed forces.
Factors to consider before you attempt to switch pension schemes
For people who have subscribed to different companies, it will be in their own interests to carry out research to establish whether the desired company is regulated or not. Consideration of the following questions may also help you decide on the best plan to take.
Weigh the costs involved
Seek help from financial advisers to help you understand the costs involved in making a pension switch before you start the process. Financial gurus can review your unique pension situation, and provide good recommendations on the best course to take. Pension switching costs vary from person to person. To cut down your costs, you may want to consult financial experts who offer affordable consulting services. Some experts may not charge you any fee unless they recommend a switching plan that resonates with your interests, and you instruct them to implement your decision.
Check whether you will lose any benefits
As discussed earlier, some pension companies attach strict terms and conditions to their pension schemes. These may come with guaranteed benefits. Contact expert financial consultants to explain to you the implications of your pension switch. If there are any losses to be incurred from the switching move, your financial adviser can educate you on whether the procedure is worth it, taking into consideration the future. The bottom line here is that you need to get your hands on the right information before you can make reasonable decisions.
Understand what happens to your savings
Understanding how your money is being invested is of paramount importance. When your financial adviser does not inform you about the investments that go into your savings, then you have every right to be concerned about the effect of switching on your savings.
Management of your pension
Time and tide wait for no man; they change. And so, your current circumstance and pension goals may also change with time. Consequently, annual reviews of your pension plans aren’t a bad idea. It rather helps you adjust your pension to suit your needs at every stage of your life. It’s not wise to settle for a pension program that promises rewards only for the short-term, but nothing to look forward to in the long run.
Why do people have different pension plans?
Career profile is one common reason that explains why people register for many pension programs. If you have had different jobs in your lifetime, the chances are that you will be under different pension schemes. Over the past decades, some employers have been offering starter pension plans for their workers.
In the UK, an automatic enrollment program took effect in 2012. This means that it’s a legal requirement for all employers to provide auto workplace pension services for their employees who are over 22 years of age, and earn annual salaries of £10,000 or greater.
And there you have it — for each job you take, you are likely to be enrolled in a pension plan. There is also a possibility that there may be a lot of pension schemes bearing your name without your notice.
How to combine your pensions
Under certain conditions, you may be able to combine your UK pensions by yourself. But there are some regulated bodies that can also combine your pensions for you with your permission. They do this by collating all available info on your existing pension subscriptions and switching them into a unified pension plan. Companies like Portafina can help you combine your pensions effectively by offering you additional assistance on the plan.
Pension combination charges
Any pension that applies to you has its own charges. While some pension schemes are pretty straightforward and transparent, others, not so much.
Assuming that you are on two different pension plans, namely A and B, with annual charges of 0.5% and 1.5% respectively, the difference of 1% may seem insignificant. But it is not. In fact, that small margin can have a lot of impact on your pension benefits. When you don’t combine pensions A and B into one scheme which charges less, you can lose up to £16,000 over a period of 20 years.
Depending on the situation at hand, you may have to switch or combine your pension schemes in order to save money. This should be done with the help of expert financial advisers who have experience with UK pension schemes.