What really happens when you move a workplace pension, and the checks that come first

Someone who has worked for five or six employers can easily end up with five or six pensions, each with its own annual statement, password and provider. The idea of gathering them into one place is appealing, and for many people it is perfectly sensible. A single pot is easier to follow, and the charges on a modern workplace scheme are often lower than on an older plan.

The difficulty is that pensions which look similar on paper can behave very differently. A transfer is usually permanent, so the checking happens before the money moves, not after.

How a transfer works

GOV.UK explains that you can move a UK pension pot to another registered UK pension scheme, or use it to buy a deferred annuity. Moving it anywhere else counts as an unauthorised payment and is taxed. In practice you contact both schemes: the one you are leaving, to check it allows the transfer, and the one you are joining, to check it will accept it.

The value of a defined contribution pot is simply what it is invested in on the day. For a defined benefit pension, the kind that pays a set income based on salary and service, the scheme calculates a “cash equivalent transfer value”, a lump sum it would pay out in place of the promised income.

Registration with HMRC for tax purposes does not mean the government has approved a scheme or its investments. That point is worth remembering if a firm leans on its registration as a sign of safety.

What can be lost on the way

GOV.UK lists several possible downsides, and your current provider can confirm which apply:

• Transfer or exit fees. For people aged 55 and over, early exit charges on most personal and workplace pensions are capped at 1% for older policies and 0% for newer ones.
• Guaranteed annuity rates. Some older plans promise to turn the pot into an income at a rate far better than is available today.
• Protected tax-free cash. A right to take more than 25% tax-free can be lost on transfer.
• A protected pension age. The right to take benefits before the normal minimum pension age can depend on staying in the original scheme.
• A guaranteed income. Leaving a defined benefit scheme swaps a promised income for an invested pot.

An example comparison

On charges alone the move looks straightforward: £120 a year less on the same money, after a one-off £400 exit charge. The guaranteed annuity rate changes the picture. If you might want a guaranteed income later, that promise could be worth far more than the saving in fees. This is exactly the kind of detail that is easy to miss on a statement.

When advice is required by law

Some benefits are known as safeguarded benefits: defined benefit pensions, guaranteed annuity rates and guaranteed minimum pensions among them. If the safeguarded benefits are worth more than £30,000, you must take advice from a financial adviser authorised by the Financial Conduct Authority before the transfer can go ahead. Defined benefit schemes are expected to check that the advice was given and that the adviser appears on the FCA Register.

Advice is usually paid for. Free guidance is available too: Pension Wise explains the options for defined contribution pensions to people aged 50 or over.

The checks your scheme must make

Since 30 November 2021, regulations have given trustees and providers a set of red and amber flags to look for before a transfer to most schemes.

• Red flags stop a transfer. They include the member being offered an incentive to transfer, being pressured, having been contacted through unsolicited marketing, or not providing evidence when asked.
• Amber flags pause it. They include high-risk or unregulated investments, unclear or high fees, and investments held overseas. The member must then take a free pension scams safeguarding guidance appointment with MoneyHelper and show proof before the transfer proceeds.

Transfers into certain schemes, such as public service schemes and authorised master trusts, skip these checks. A government review in 2023 found that about 1% of roughly 290,000 transfers in 2022 raised a red or amber flag, and estimated that around 2,000 possible scam transfers had been stopped.

Warning signs worth knowing

Pension cold calling has been banned since 9 January 2019, apart from narrow exceptions where you already have a relationship with the caller. The FCA lists the classic warning signs: a promise of guaranteed better returns, pressure to decide quickly, unusual or unregulated investments, complicated structures and several firms, some overseas, each taking a fee.

Checking a firm

Look the firm up yourself on the FCA Register using its Firm Checker, rather than following a link from an email, and check the FCA Warning List. If the contact details differ from those you were given, use the ones on the register. The FCA consumer helpline is 0800 111 6768.

How long it takes

Members have a legal right to transfer in most cases. For a defined benefit scheme, the Pensions Regulator’s code of practice expects the statement of entitlement, which shows the transfer value, within about three months of a request. That value is guaranteed for three months, and you need to apply in writing within that period. Schemes are then expected to complete transfers within six months. Defined contribution transfers are often much quicker, though checks can add weeks.

Who this matters for, and what to check

• Ask your current provider in writing whether the plan has any guarantees, protected tax-free cash or a protected pension age.
• Compare annual charges in pounds as well as percentages.
• Check any exit charge, especially if you are under 55.
• If a defined benefit pension is involved, budget for regulated advice.
• Be wary of any approach you did not start yourself.

If you are not sure where all your old pensions are, start with our guide to tracing a workplace pension from a previous job. And if the point of consolidating is to start drawing an income, read how the tax-free quarter works first.