Pension Transfer Value

ghostwriter wrote: »

How come I lose so much of the "retirement fund" if I transfer this to another provider?

Have you asked the provider?

Old pension plans are often designed under the idea that the provider's costs are taken over the likely lifetime of the plan (i.e. until the selected retirement date) and if the plan is cancelled early then the outstanding costs would be recovered all at once via transfer penalty.

Often contributions paid in the first couple of years would buy "capital units" to which very high annual charges and early transfer penalties apply, and thereafter contributions would buy "accumulation units" to which lower annual charges and no transfer penalties apply. If you stopped paying in contributions after a few years, it isn't uncommon for the plan to consist mostly of capital units which means the transfer penalty is very high.

Some old-style plans had different terms & conditions for what used to be protected rights (National Insurance rebates) and non-protected rights (employer/employee contributions). E.g. protected rights only ever bought "accumulation units", on which there was no transfer penalty.

This is all guesswork as you haven't given us much to go on.

The current provider has been closed to new business for over a decade and isn't putting any effort into this pension. Given that the value of this pension is <£10k in total is it worth taking the hit to move this to a better provider?

Again we don't have much to go on. But probably not, at least for the non-protected rights part. Even if you can get lower charges at a better provider it's unlikely it will make up for a transfer penalty of 40%.

Such penalties are due to be capped next year. Your 60% could end up nearer 99% if you wait.

ghostwriter wrote: »

That's great news, thanks.

Where can I find out more about that?

It is worth noting that it may not be good news. It depends on the reason for the exit charge. For example, a market value reduction will still be allowed. Also, those that have had increased allocations will be allowed to claw back those allocations on early transfer/commencement. Plans with conventional with profits with a basic sum assured will also be able to levy a higher penalty as the sum assured was based on you keeping it to the selected age. As you are not going to that point, you shouldnt keep the full benefit.

So, at this stage, it is worth finding out what the penalty type is.