Looking for a pension transfer value? There are some essential points you need to look at, and essential questions on pension transfer value you have to ask your provider.
There are two main values you have to consider when you assess your own private pension. First of all there will be the current value of the pension plan. The current value is usually based on the value at close of business the day before.
The second is the pension transfer value, and is not necessarily the same as the current value of your pension, and this goes for personal pensions, SIPPs and Stakeholder Pensions. This may be because of a number of factors
A bonus attached to a With Profit fund
If you are in With Profits funds your pension transfer value may be above your current value due to a bonus being applied to your With Profits Fund. Even though With Profit funds are not very popular these days, there are many individuals who still have a private pension that remains invested in a With Profits Fund. Unfortunately, due to the current market conditions, a lot of these With Profit funds have not been performing greatly however, there are some pension funds out there that still applying a terminal bonus on transferring away. Please be aware that these terminal bonuses are not guaranteed and as such can be taken away. So if you have been quoted a pension transfer value with a bonus being attached to it, it may be wise to take advantage of it before it gets removed.
An MVR applying because of a with profit fund
On the other side of the coin, there may be an MVR applying to a With Profit fund on your private pension. Unlike other private pension funds, With Profits funds can apply an MVR to your fund. This means that if you want out of this fund you will effectively have to pay a penalty.
Now, this isn’t just on transfer away from the pension provider. If you wanted to switch to another fund within the same pension provider you would still have an MVR (a penalty) to pay. Unfortunately, there are numerous pension providers that apply an MVR and it really can have a drastic effect on a pension transfer value, sometimes the value can decrease by as much as 25%.
A transfer penalty on the pension transfer value
If you have a transfer penalty being applied to your pension transfer value this may be because of various factors. If you’re private pension is with your bank they usually impose a penalty if you transfer away within the first five years of taking out the pension. If you set up your pension via a financial adviser then a penalty usually will apply also on transfer away within the first five years. This is usually because the pension provider will want to recoup any commission paid out to the financial adviser.
If you are considering transferring your pension then you have to consider the effect of a penalty will have on the overall value of the pension plan.
Essential questions to ask if you have an MVR applying or a transfer penalty
With regards to a penalty, one key question to ask your private pension provider is how long the penalty will apply for as it may be wise to wait until there is no penalty being applied.
In relation to an MVR being applied, these are usually applied if a With Profit fund has been performing poorly. You have to weigh up the costs of the MVR with the fact that the With Profit fund is unlikely to give any bonus rates for the foreseeable future. On such occasions it may be wise to ‘take the hit’ and transfer away to a better performing fund selection or personal pension or stakeholder pension plan.
Once decided that you want a pension transfer value and wish to transfer to a better private pension provider, it is always best to seek the advice of a financial adviser or the very least check out a number of pension providers on the pensions that they offer.