Pension transfer fees: how much does it cost to transfer?

There are many things to consider before transferring your pension, including the fees.

We explore the steps, fees, benefits, and drawbacks of transferring your pension.

What is a pension transfer?

A pension transfer involves moving your retirement savings from one scheme to another, such as between workplace pensions or personal pensions or switching from a defined benefit (DB) scheme to a defined contribution (DC) one. 

Understanding how to transfer pension savings is essential for individuals considering a move, as the process can vary depending on the type of scheme and the specific provider.

Not all pensions are transferable. Defined benefit pensions often have strict restrictions or require professional financial advice if the pot exceeds £30,000. Some older pensions may also impose limitations on transferring or exit conditions, making it important to evaluate your options carefully.

People transfer pensions for a variety of reasons, including:

• Access to better investment options: Some providers offer a wider range of funds that align with your risk tolerance, including options for higher or lower-risk investments.

• Lower management fees: Annual charges vary significantly among providers. While the UK average is 0.75%, some pensions can charge as little as 0.3%, saving you thousands over time.

• Consolidation for easier management: Managing multiple pensions can be overwhelming. Consolidating them into one scheme reduces paperwork and provides a clearer view of your overall retirement savings.

What are the typical pension transfer fees in the UK?

Transferring a pension involves several potential fees. These pension transfer costs depend on the provider, the type of pension, and the value of the pension pot.

Common charges include:

• Exit fees: Many providers charge fees for leaving their schemes, often ranging from 1% to 5% of the pension pot. For an average pension pot of £50,000, this is between £500 and £2,500. The exit fee for over-55s is capped at 1%.

• Transfer fees: Pension transfer fees may be a fixed amount or a percentage of the pot, covering the administrative cost of processing the transfer. Some providers offer free transfers.

• Adviser fees: Professional financial advice is mandatory for defined benefit schemes worth over £30,000. Depending on the transfer's complexity, adviser fees typically range from several hundred to several thousand pounds.

• Fund exit penalties: Certain investments impose penalties for early withdrawal. Accessing a pension before 55 without meeting specific criteria, such as ill health, can result in a huge tax charge of up to 55%.

Understanding these pension transfer costs helps you compare providers effectively, ensuring you minimise fees wherever possible.

Pension scams and cold calling: how to avoid

Pension scams have become a serious issue recently, with fraudsters taking advantage of the complex transfer process to target individuals.

Scammers often lure victims by promising guaranteed high returns, convincing savers to move their pensions to unregulated schemes. This can result in significant financial loss and tax penalties if HMRC deems the transfer unauthorised.

Some ways to identify potential scams include unsolicited calls, emails, or messages about your pension, promises of guaranteed returns or secret investment opportunities and requests to transfer your pot quickly without detailed explanations of the risks involved.

In 2019, the UK government banned cold calling about pensions. If you receive an unsolicited call, it is likely illegal.

Always verify the legitimacy of any pension scheme through the Financial Conduct Authority (FCA) and consult a qualified financial adviser before proceeding with a transfer.

Can I transfer my pension to a bank account?

It is not possible to transfer your entire pension pot directly into a bank account unless it is taken as a lump sum.

Pensions are designed to provide a steady income throughout retirement, typically through phased withdrawals rather than a one-time transfer. This structure helps your savings last longer and benefit from continued growth.

Withdrawing your pension as a lump sum has significant tax implications. While 25% of the pot is tax-free, the remaining amount is subject to income tax. Large withdrawals could push you into a higher tax bracket, leaving you with far less than expected. 

Additionally, transferring the funds into a bank account may expose them to inflation risk, as the money will likely no longer grow at the same rate as it would in an investment-based pension scheme. Inflation can erode the value of your savings, reducing your purchasing power over time.

Can I transfer my pension to another pension?

Transferring your pension to another scheme is a common option for individuals seeking better performance, lower fees, or simplified management.

For example, moving from a scheme with a 1% annual fee to one with a 0.5% fee can significantly impact long-term savings. 

Over 10 years, a £100,000 pension pot growing at 5% annually would incur approximately £12,000 in fees at 1%, compared to £6,000 at 0.5%. This difference demonstrates the long-term savings potential of lower-cost schemes.

Pension consolidation also provides a more straightforward approach to managing your retirement savings by merging multiple pensions into one account. However, evaluating the benefits and risks is essential, particularly if your current pension includes unique features or guarantees.

Some pensions, such as defined benefit schemes, have stricter rules. Transfers are often limited to other defined benefit schemes, and transfer incentives offered by providers, such as cash bonuses, may not outweigh the benefits lost in the process.

What are the typical steps involved in transferring a pension?

If you’re exploring how to transfer your pension savings, the process typically involves a few steps:

1. Research and select a new provider: Identify schemes with lower fees, better investment options, or additional benefits.
2. Contact your current pension provider: Request information about exit fees and any restrictions on transferring your pension.
3. Complete the paperwork and wait for the transfer to process: Submit transfer forms and documentation to initiate the process, which may take a few weeks to finalise.

How much does it cost to transfer a pension?

The cost of transferring a pension depends on several factors.

Providers vary in their charges; some offer free transfers, while others impose fixed fees or percentage-based charges. Larger pension pots will likely incur higher absolute fees, even if percentages are low.

Professional advice is mandatory for defined benefit schemes worth over £30,000. Adviser fees add to the overall cost but provide assurance that the transfer is suitable.

Even when advice isn’t legally required, some providers may insist on it. Once completed, a transfer cannot be reversed, making it essential to weigh all costs and benefits beforehand.

Here are some tips to reduce costs:

• Check for fee-free transfers: Many modern pension providers offer transfers with no fees, which can significantly reduce the overall expense.

• Compare providers carefully for hidden charges: Look beyond the headline fees to uncover additional costs, such as those for managing other assets bundled into pension products.

• Ensure you understand if your fees will fall if your pension grows: Some providers offer sliding fee scales, where the percentage charged decreases as your pension pot grows.

• Consider a modern pension: Older pensions often come with higher fees, while newer schemes tend to offer lower management charges and more transparency.

How long does it take to transfer a pension?

The transfer process usually takes between two and six weeks but may vary based on provider efficiency and the complexity of the transfer. Delays can occur due to missing documentation, administrative backlogs, or complex schemes requiring additional checks.

Have these documents ready before starting a pension transfer:

• Pension plan details, including the provider’s name and policy number.

• Proof of identity, such as a passport or driver’s licence.

• Transfer forms from your current and new providers.

Being well-prepared can help ensure a smoother transfer process and minimise unnecessary delays.

Should I transfer my pension?

When deciding whether to transfer your pension, there are several factors to consider: 

• Potential for better growth in a new scheme: Some providers offer more investment opportunities or tailored options for your financial goals.

• Costs vs benefits: The fees and charges could outweigh the advantages of switching. 

• Lost benefits: Transferring a pension may result in losing benefits such as guaranteed annuity rates or favourable terms, especially in older schemes.

These situations could make transferring risky:

• Moving out of a defined benefit pension without thorough financial advice.

• Accepting transfer incentives without understanding the long-term implications.

• Switching to a market-based pension without fully considering your risk tolerance.

• Transferring during unfavourable market conditions could reduce the value of your pension pot.

What are the benefits of consolidating your pensions?

Consolidating your pensions into one scheme can simplify management and offer several advantages:

• Reduced paperwork and easier management: Combining pensions means fewer statements, forms, and accounts to track.

• Potential cost savings with fewer or lower management fees: Consolidating into a lower-cost scheme can reduce annual charges, saving you money in the long term.

• Flexibility when it comes to accessing your pension: A single pension pot often provides more withdrawal options and greater ease of planning.

• Health and expected life expectancy: Reviewing your consolidation strategy in the context of your health and longevity ensures your savings last as long as needed.

• Better investment options with more funds to consider: Larger consolidated pots may grant access to exclusive or higher-performing investment funds.

Our expert says: Carefully consider if consolidating your pensions is right for you

“There are many benefits to consolidating your pensions, but it’s worth checking if you’ll lose valuable benefits if you go ahead and consider financial advice first, as this is an irreversible decision.

A defined benefit pension pays out a secure income for life and rises in line with inflation, while some pensions offer a guaranteed annuity rate, which could be higher than elsewhere.

It’s worth stressing you must get financial advice if your guaranteed benefits are worth £30,000 or more, but some providers may still recommend getting advice for pots below this amount.”

What are the drawbacks of consolidating your pensions?

While consolidation offers benefits, it also has potential drawbacks that must be carefully weighed:

• Loss of specific benefits: Certain pensions, such as defined benefit schemes, may include guaranteed income or other valuable features that you could forfeit.

• Exit fees and transfer costs: Transferring pensions can incur significant charges, reducing the overall value of your pot.

• Investment restrictions: New providers may not offer the same breadth of investment options as your current scheme.

• Reduced flexibility: Some consolidated schemes have fewer withdrawal or management options.

• Risk tolerance: Switching from a guaranteed pension to one tied to market performance introduces investment risks.

• Timing and market conditions: Poor market performance during or after consolidation could negatively impact your pension's value.

Get expert financial advice

Pension transfers involve complex decisions that affect your financial future. Seeking expert financial advice ensures you fully understand how to transfer pension savings safely and effectively, especially for complex schemes.

Financial advice is a legal requirement for defined benefit schemes worth over £30,000 and can help you make informed decisions with confidence.

Let Unbiased match you with a professional financial adviser for expert guidance on pension transfers, fees, and making the best decisions for your retirement savings.