Defined Contribution Pension Transfer: Should I Combine My Pensions?
As time passes, you may have moved to a better job with a higher salary, or you may have changed jobs from one company to another. While changing jobs you will leave your DC or workplace pension there. Any pension that you stop contributing to is considered an old pension. Most people have many old pensions that are left in limbo once they leave a job and cease contributing.
However, is it possible to transfer your pension from your previous employer to your new employer? Most likely, if you are reading this article, you have probably worked for another company previously and are now interested in how to transfer your pension from your old company to your new company. Before deciding to transfer your old pension scheme to the new pension scheme, you should ask yourself an analytical question such as: should you consolidate everything into your workplace pension? Is that pension plan better compared to an independent SIPP?
Dominic James Murray, Founder, CEO, and Independent Financial Adviser (IFA) at Cameron James answers the question as well as other perspectives you need to understand workplace pension, UK pension transfer, and SIPP. Watch the video to know the possibilities and implications as explained by the Pension Transfer Specialist with over 10 years of experience (including the USA and non-UK residents).
Defined Contribution Default Funds
It is important to note that your Defined Contribution scheme that you have from employer were given by default. Typically speaking, these schemes might be something like Zurich, Aviva, Scottish Widows, etc. You were given these default funds from your employer because they have a relationship with your ceding scheme to put the pension scheme together for you.
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, whereas 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 contrary to your DC pension scheme, a pension wrapper such as SIPP can provide you with multiple benefits both in 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 DC schemes of your employer might have a very limited fund range of 20, 30, or maybe even 40 funds. Normally speaking, these funds that you were enrolled in default have much higher fees and charges than what you would pay if you went and bought them independently yourself through a pension wrapper such as SIPP. Now the question is, why wouldn’t you consolidate your DC pensions down into a single SIPP given the benefits above?
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, then you should be working with an FCA-regulated Independent Financial Advisor (IFA). What we mean by lot of experience here is, over the course of your career time, you deposit your old DC pension pots into the SIPP every time you leave your employer. This means inside the SIPP, you can ensure that your pension asset has been managed correctly or at least it has professional oversight from yourself if you’re a professional investor.
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. If you don’t feel that way, you can move around to attain the best costs and best portfolio performance and gain more growth on your assets.
All things considered, if you have questions about your Defined Contribution schemes, or consolidating your DC schemes into a SIPP, get in touch with one of our FCA-regulated Independent Financial Advisor. Click the button below and get a free initial consultation with us.
Cameron James Expat Financial Planning is the preferred expats financial planning firm for DC to SIPP transfers. With over 10 years of experience in transferring UK pensions, Cameron James is now servicing clients in 26 countries, including the USA.
