Like may people, I have a small workplace pension kicking around from many years ago — and it’s high time I worked out what to do with it.
It’s tempting to leave it for a nice holiday at the start of retirement. But the high charges mean this sum could be eroded over time. Maybe not such a nice holiday after all?
So I’ve started the process to transfer it to a larger pension pot, carefully selected for its low charges and good investment options.
Your pension is likely to be your biggest asset aside from your house, so moving to a better deal should be a priority. But I suspect many people doing January money makeovers are not prioritising pension transfers or consolidation. That’s partly because it’s far easier to choose better savings rates, streamline household budgets, or rebalance investments. All these tasks can be done in a matter of hours. But the timescale for a pension transfer is off-putting — in some cases, it can drag on for a scandalous amount of time.
If a pension is invested in cash, the major providers say a transfer can take two to six weeks. But if the pension is transferred “in specie” with the underlying investments in place, it typically takes eight to 12 weeks. Advice firm My Pension Expert’s data from over 5,000 client transfers in the 2023-24 financial year found they took up to 13 weeks.
Why on earth does it take so long? The guaranteed maximum time it takes to switch current accounts, direct debits and overdrafts included, is seven days.
There are some signs of improvement for cash pensions. The Origo Transfer Service accounts for 95 per cent of DC pension transfers. It publishes the transfer times of 30 voluntary participants that make up 92 per cent of cash transfers, (AJ Bell and Interactive Investor are notable absentees).
For the 12 months to the end of September 2024 the average transfer time for a cash pension was 11.9 days, down from 14 days in January 2023 — though this is just the “ceding time”, the time taken by the acquiring provider will add to that a little.
New legislation may slow this progress. November 30 marked three years since the implementation of pension transfer regulations from the Department for Work and Pensions. These allow pension providers to express their concerns about your transfer under two categories, red flags or amber flags.
If your pension provider identifies any red flags — for example, unsolicited contact to persuade someone to transfer — they can prevent the transfer from going ahead. An amber flag could mean you’re at risk of being scammed. If so, they’ll refer you for a Pension Safeguarding Guidance appointment with MoneyHelper, a government-backed advice service.
It is positive that thousands of people have been saved from fraudsters. But Freedom of Information data from the Money and Pensions Service gathered by financial adviser Quilter, spanning the three-year period since 2021, reveals four in five amber flags were raised for either an unknown reason or for a potentially low-risk transfer relating to overseas investments. So a huge number of pension transfers have been needlessly interrupted due to misinterpretation or overcautious interpretation of the legislation.
What’s urgently needed is a guaranteed pension transfer timescale. PensionBee, a UK pension consolidation provider, has previously called for a 10-day guarantee for cash pensions, which feels reasonable.
Investors don’t like the risk of long delays because it means you’re either out of the stock market in cash, or you’re unable to trade your investments until the transfer completes. This leads to fear of missing out or worries about losses. There’s an unpleasant sense of giving up control that erodes trust in the system.
My Pension Expert reported the process “remains slow and lacks transparency”. Depending on the two providers you’re dealing with, there may be administrative hassles. When transferring my legacy pension, I have to fill out a few forms and make a few phone calls. I just wish there was a button to press that will sort it out in one go.
In spite of delays, I think transferring is worth it for the one thing as an investor you can control — lower fees.
If mine were a bigger pot, or I was further from retirement, there’d be a lot more at stake. Research in summer 2024 by Moneyfarm found Britons on average pay annual charges of 2.5 per cent on their pensions, way over the 1 per cent that would be considered reasonable.
For example, if a 40-year-old had £40,000 saved in one pot and they aimed to draw from their pension at the age of 67, with 5 per cent annual growth and a 2.5 per cent annual pension management charge, that pension pot could be worth £78,000 without paying anything else into it. Exactly the same pension pot with a 1 per cent annual management charge would be worth £115,000.
The transfer in deals touted by several major providers may appeal as a bare minimum to pay for the time and hassle involved. Interactive Investor starts at £100 for a £10,000 pension transfer, for example. But prioritise selecting the lowest cost provider over any marketing incentive.
It’s important to check whether your provider charges exit fees. But some might be so keen to get hold of your pension that they pay the exit fees for you. On its website, Hargreaves Lansdown says it “may be able to help in some circumstances”, while AJ Bell offers up to £500 to cover the costs of transferring.
How to make a transfer go more smoothly? If you hold an unusual investment, such as a provider’s own-brand fund or an overseas-domiciled investment fund, an “in specie” transfer may be difficult. Consider selling your holdings to do a cash transfer. While you’re transferring keep printouts and evidence of holdings and cash amounts at every stage.
To stay motivated, think of all the softer rewards: less paperwork and fewer passwords. Having seen older family members struggle with “modern life” admin, streamlining pensions in advance of retirement feels like a good thing. There’s also the thought that if a new pension provider launches next year with much cheaper charges, your newly consolidated pensions will mean you’ll only have to transfer once.
Moira O’Neill is a freelance money and investment writer. Email: moira.o’neill@ft.com, X: @MoiraONeill, Instagram @MoiraOnMoney
