Transferring their pension savings to a different provider could benefit your clients in several ways. They might decide to switch to a scheme with lower fees, meaning they keep more of their savings. Alternatively, they might want more flexibility over how their savings are invested.

Combining pensions could also simplify their retirement plan and make it much easier to manage their savings.

More people have taken advantage of these potential benefits of transferring their pensions in recent years. For example, according to PensionsAge, the Origo Transfer Service – one of the largest pension switching services – helped consumers complete a record breaking 1.2 million defined contribution (DC) pension transfers in 2023.

However, there are some risks associated with pension transfers and your clients may benefit from some professional guidance.

Read on to learn why your clients might need to work with a financial planner when navigating a pension transfer. 

Pension scams cost victims more than £26 million between 2020 and 2022

Protecting themselves from scams is crucial when clients are transferring their pension funds. Unfortunately, scammers often attempt to convince savers to transfer their pension pot to a false scheme or release funds from it.

At this stage, their savings are usually stolen and the victim likely can’t recover any of their pension.

These scams may involve promises of better growth or reduced fees, making the transfer appear very attractive. As such, many savers, especially those who feel unprepared for retirement, could fall victim to a pension transfer scam.

According to FTAdviser, there were 1,595 reports of pension fraud between 2020 and 2022, costing victims a total of more than £26 million.

It’s crucial that your clients are cautious when transferring their pensions, so they can avoid scams. 

Working with a financial planner can be incredibly valuable here because we can do due diligence to ensure that your clients are not putting their retirement savings at risk.

Pension transfers must meet specific criteria before they are allowed

The Financial Conduct Authority (FCA) recognised the dangers of pension transfer scams so in November 2021, they introduced new regulations to protect consumers.

Prior to this, most pension scheme members had a statutory right to transfer their pension funds and the trustee of their current pension scheme could not stop this. 

The Pension Schemes Act 2021 changed this, so members could only move their pension savings to another scheme if they meet certain conditions.

If they want to move their pension to an occupational scheme, your clients must prove that they work for the sponsoring employer for the scheme they are moving the funds into.

The trustees of their current pension must also perform due diligence on all pension transfers and demonstrate that there are no “amber” or “red” flags associated with the receiving scheme or the transfer process.

Amber flags include:

• Clients providing incomplete or false information relating to the transfer
• High-risk or unregulated investments in the receiving scheme
• An unclear or unorthodox structure of investments in the receiving scheme.

If these or other amber flags are present, your client may be asked to attend a MoneyHelper information session about pension scams before they can proceed with the transfer.

However, if there are red flags present, your client’s current pension scheme can stop the transfer from going ahead altogether. These include:

• The client failing to attend the MoneyHelper guidance session when amber flags are raised
• Clients not responding to requests for information about the transfer
• Clients requesting a transfer after unsolicited contact such as cold-calling or emails
• Clients being offered an incentive or being pressured to complete the transfer.

While these guidelines protect your clients from pension scams, they may also make the process of moving their savings more complex.

As such, they might need support from a financial planner, especially if they are asked to provide more information about the transfer. 

We can help them gather all the necessary information and documentation they need to prove the legitimacy of their transfer. 

If there are issues with the transfer for any reason, we can help them decide on the best course of action so the whole process runs smoothly.

Transferring their pension savings is not always suitable for a client’s financial plan

Discussing their pension transfer with us might prevent your clients from falling victim to a scam. It could also help them decide whether a transfer is the right option for them in the first place.

In some cases, moving their pension savings might reduce their fees or give them more freedom about how their wealth is invested. As a result, their pension savings might align better with their overall financial plan.

However, there are some situations when a transfer may not be the most suitable choice. 

For example, a defined benefit (DB) pension typically offers an income for the rest of your client’s life, and certain schemes may pay an income to surviving family members when they die. Their income might increase in line with inflation too. 

But, if your clients transfer this pension into a DC scheme, they could lose these benefits.

Older pension schemes might also charge an exit fee, and your clients need to consider how this could affect their savings.

Additionally, pension pots of £10,000 or less are subject to the “small pot” rules. This could mean that your clients can take the full pot as a lump sum without affecting their Annual Allowance – the amount they can contribute to their pension each year without triggering an additional tax charge.

The first 25% is tax-free while the remainder is taxed as income, and they can normally do this three times.

As a result, it might be beneficial to leave these small pots instead of transferring them into a single scheme. This is because flexibly accessing a DC pension pot of more than £10,000 will normally trigger the Money Purchase Annual Allowance (MPAA), effectively lowering their Annual Allowance to £10,000.

We can discuss all these potential implications of a pension transfer with your clients to ensure that it is the most effective choice for their financial plan.

Get in touch

We can support your clients to make sure their pension transfers are safe and benefit their financial plan.

They can contact us at hello@ardentuk.com or call 01904 655 330. As an award-winning financial advice company that was a 2022 VouchedFor Top Rated firm, you can be sure that we’re a bona fide company providing excellent advice and high-quality service.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance. 

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.  

Workplace pensions are regulated by The Pension Regulator.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.