Throughout your life, you may have changed jobs several times, perhaps moving to roles with better salaries or different opportunities. Each time you switch employers, you often leave your Defined Contribution (DC) or workplace pension behind. These pensions that you no longer contribute to are considered “old pensions,” and many people end up with several pension pots scattered across different schemes.
Understanding the process of a Defined Contribution Pension Transfer is essential to managing these old pensions effectively and making the most of your retirement savings. You might be wondering: is it possible to transfer your pension from a previous employer to your current workplace pension? And should you consolidate all your pensions into one?
Consider whether keeping your pensions separate or combining them into a Self-Invested Personal Pension (SIPP) better suits your financial goals before making any decisions about a Defined Contribution Pension Transfer.
Dominic James Murray, Founder, CEO, and Independent Financial Adviser (IFA) at Cameron James, answers these questions and offers insights into workplace pensions, UK pension transfers, and SIPPs. Watch the video to learn from a specialist with over 10 years of experience working with UK and international clients.
Visit our YouTube channel if you want straightforward explanations on pensions and retirement planning.
Defined Contribution Default Funds
Your employer typically gives you a Defined Contribution scheme by default. Typically speaking, these schemes might be something like Zurich, Aviva, Scottish Widows, etc. Your employer selects these default funds through a relationship with your ceding scheme to set up your pension.
By default, you have no choice over the options of funds. If you now went to market and did your own independent research, would that pension scheme be better or worse compared to the tier-one SIPP such as AJ Bell or Fidelity.
Why You Should Consolidate Your DC Schemes Into a SIPP
Throughout your career, you might have built up Defined Contribution schemes from 10, 15, 20, or even 25 years ago that you would like to consolidate down into your existing scheme. Consolidating all of your pension pots and put it in one place is a logical thought. As it provides you with more simplicity and easier of access over your pension assets.
Your employer with a Defined Contribution scheme has a number of limitations compared to a SIPP, where you have better advantages. Notably, in DC pension, typically you will be enrolled in default funds. In SIPP, you have the flexibility of choosing funds from the market which is suitable to your risk profile. You can watch the video here to learn more about the disadvantages of Defined Contribution scheme.
In contrast to your DC pension scheme, a Defined Contribution Pension Transfer to a SIPP can provide you with multiple benefits both in the short and long term. Here are some of the benefits you can have:
- Pension Acts and Freedom (Early Withdrawal from the Age 55 or 57)
- Tier one SIPP (AJ Bell, Fidelity, etc.)
- Larger range of funds (2000-3000 options of funds)
Your employer’s Defined Contribution (DC) schemes often offer a limited selection of funds, typically between 20 and 40 options. These usually come with higher fees compared to what you could access by managing your pension independently through a SIPP. Given these advantages, why wouldn’t you consider a DC Pension Transfer to consolidate and access greater choice and lower costs?
Our Advice
If you're looking to transfer your old employer pensions, consolidate them down into a SIPP and keep your existing workplace pension with your current employer. When you finish the employment, then you can transfer it down into your existing SIPP.
Over the course of your career, in this day and age, people move around. It's not like the older days of our grandparents, who work for one company or two companies their entire lives. You will have many different pension pots over the course of your employment with multiple employers. It is a good idea to set yourself up with a SIPP?
Basically, you could set up a SIPP by yourself independently, if you have a lot of experience in investment. If you are not experienced in managing your assets, it is advisable to work with an IFA. What we mean by experience is that you we the one regularly transferring your old DC pension pots into your SIPP each time you change jobs. This way, your pension assets are either managed by you, if you’re a skilled investor, or overseen professionally to help ensure they perform well.
As such, you can review the charges and the costs on an annual basis or every a bi-annual basis. You can compare whether is it still the best SIPP in the market. You can then decide if your SIPP is still the best option. If not, you can switch to get better costs, performance, and growth for your assets.
Managing multiple old workplace pensions can become a burden. A Defined Contribution Pension Transfer may be the solution to simplify your pension planning. Consolidating your DC pensions into a SIPP through a Defined Contribution Pension Transfer can offer you lower fees, more control, and a wider range of investment choices