Should I stay or should I go? – The ups and downs of trying to transfer a pension

This is one of my favourite Clash songs from the 1980s and my punk band at school (called EMF – the original EMF by the way) tried desperately to cover it. It was a disaster of course – the music is dead simple, but the middle section, where Joe Strummer ad-libs, was impossible to replicate.

Making a pension transfer is very much like the life of a hot air balloon pilot – it has its ups and downs! (All hot air balloon operatives out there, please correct me if “pilot” is the wrong word).

Why is this topical?

Well, given that the CBI says we will all have around 15 jobs each before we retire, with auto-enrolment racking up the pension pots for each employment, that means we would all have 15 accounts to combine. Those who have seen me deliver messages to employees (in a classroom format or virtually, more commonly now – which I love) know that I call this collection of pension documentation “the shoebox of shame”!

And when questions follow these sessions or in the resultant 1-1s that the very best employers facilitate, the most common question by far is “should I move my old pensions into my current one?” – hence “should I stay or should I go?”

5 questions your employees should consider before making a pension transfer:

1 Is there an exit penalty of transfer fee for moving? Most normal schemes like a GPP or Stakeholder (since Stakeholder rules dictated in October 2001) have no exit cost. And while we are in this space…
2 Will my current provider charge me to receive the money? – simple – NO
3 Do I have to pay an adviser? It is no surprise that since commission was removed for such transfers, the adviser community has scarpered. Reward dictates behaviour in this domain – if it rewards an adviser to give a certain type of advice, guess what…they are super keen to give that advice! But if not…So the answer is – NO
4 How easy is it to do? This is where the ups and downs come in. For the very best providers, it is simple to do, free, quick and doesn’t require paperwork or a wet signature – and given the current fear of viral contagion, this must be what EVERY provider and scheme aspires to. Some providers are less nimble or advanced of course – phone this number, complete this form, lick this envelope (seriously – who wants to lick anything right now?!?)
5 Will I lose money in the stock market? So this is massively topical. The stock market has rarely been so bumpy and this should quite correctly be a concern. Typically, most investors are in the same sort of space – tracked defaults, with passive funds broadly invested in the same place. So if they exit the market to transfer when the market is low, they should be re-entering it in broadly the same place – this is not a totally risk-free domain however and out of market exposure for a few days does exist. But the old adage of “time in, rather than timing” generally applies.

And what about a bulk transfer when a scheme is changed (improved) at employer level?

Note to self – don’t get too ranty here! In the very best of cases, where a company decides to upgrade its pension from provider A to provider B, there is a smooth process to help employees move their pot – it is called “direct offer”. And for the avoidance of doubt, most employees really do want to move their pot from provider A to provider B. Annoyingly, paperless and signature free activity here is still one of the balloon pilot’s “down” moments. This rubbish needs to end and CV-19 should be propelling a rapid improvement to this journey here.

Rant alert – in the worst cases, provider A actively blocks the asset transition process to provider B. This is all about retaining the money and the associated charges and profit being levied. But as all the providers hungrily seek new business AND build in the transition of assets when they offer a new price, they should all remember that what comes around, goes around – especially the members’ pension pots!

Contact me directly if you would like to learn more about how we engage on pensions and transfers via Zoom and Teams to wide audiences, especially if guidance 1-1s would go down well with your employees.

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