Transfers from one pension to another

But with the regulatory change in various areas of the pension market, transfers can also be useful for particular clients to consolidate their pension, or if they are currently in a defined benefit arrangement to give them access to the new pension freedoms from April.

Potential benefits of transferring from one type of pension to another are:

1. Consolidating multiple pots into one – for example, for ease of understanding and planning.

2. Benefiting from a higher quality proposition.

3. Accessing greater flexibility at retirement from age 55.

4) Tax advantages – money can be taken in a more tax efficient way.

5) Having more control over how and when the benefits are taken.

As the new rules stand, free access to pension funds, and the removal of so-called 55 per cent death taxes, apply to defined contribution pensions and related at-retirement solutions only and in all but a few peripheral cases will not cover final salary schemes.

Some have said this discrepancy could lead to a “flurry” of DB transfers before the April 2015 deadline, especially as other rule changes that come into force then will require all defined benefit transfers to be advised and will prevent transfers from ‘unfunded’ public sector schemes.

At present a person can request the transfer themselves and do not need to take advice unless the provider insists they do. At least one provider has told FTAdviser it will not accept transfers from either non-advised or ‘insistent’ clients.

According to Jamie Jenkins, head of workplace policy at Standard Life, some of the things to consider with transfers of this nature are:

1. Do any exit penalties apply to the existing pension?

2. Will the client lose any important benefits, for example, enhanced tax-free cash or life cover?

3. Are there higher costs associated with the transfer?

When giving advice on these types of transactions, Mr Jenkins says it is important to compare the benefits paid under the defined benefits scheme compared with the possible return within a defined contribution plan.

Mr Jenkins says: “The key is to understand the client’s objectives and giving them enough information to make an informed decision and that they understand the implications of making that decision.”

If your client wants to bring various workplace pension pots into just one scheme, Mr Jenkins says the potential benefits are:

• It may be easier for your client to manage their retirement savings as everything is in one place.

• They might pay less in charges.

• It may be easier to review all their pension payments.

• They could have more options around where their money is invested.

• They may find it easier to keep track of how their investments are performing.

• They can manage their retirement income in a more flexible and tax efficient way.

• They may have more choice with how they access their money from the age of 55.

The risks of consolidating several workplace pension pots into just one scheme are similar to the risks of transferring from one scheme to another, Mr Jenkins adds.