Transferring a Drawdown Pension

Starting to take retirement benefits doesn't necessarily mean your pension has to stay with the same provider. If your pension is already in drawdown, you may still be able to transfer it, although additional rules apply to funds already nominated for drawdown.

This guide explains how drawdown pension transfers work, the restrictions that may apply and what to consider when comparing your existing pension with a new provider.

In many cases, you can transfer a drawdown pension to another provider. However, the receiving provider must be willing and able to accept the transfer, and it needs to meet the relevant pension and tax rules.

People may consider a pension transfer in drawdown for several reasons, such as:

• Seeking different investment choices

• Comparing provider and investment charges

• Looking for different drawdown facilities

• Bringing pensions together with one provider

• Accessing different online tools or service options

• Changing how their retirement savings are managed
  
  

Transferring isn't automatically beneficial. You need to compare what you're giving up and what the new arrangement offers. Existing guarantees, protected benefits, charges, investment options and how you currently take income are all important considerations.

The rules can also depend on whether you have flexi-access or capped drawdown and how the transfer is structured.

Pension drawdown transfer rules allow sums and assets held in a drawdown fund to be transferred between pension schemes, but specific HMRC conditions apply for the transfer to be treated as a recognised transfer. A recognised transfer is a pension transfer that meets HMRC’s conditions and can therefore take place without normally being treated as a taxable pension withdrawal.

Key conditions can include:

Transferring the whole drawdown fund: All sums and assets held in a particular drawdown fund usually need to be transferred. Moving only part of that fund would not meet HMRC's conditions for a recognised transfer.

Using a new arrangement: The transferred funds must move into a new arrangement with the receiving scheme that does not already contain other sums or assets.

Continuing on a like-for-like basis: Where transferred funds continue to provide drawdown, they need to do so on the same basis. For example, a flexi-access drawdown fund that continues in drawdown must remain flexi-access drawdown.

These rules relate specifically to funds already held in drawdown. A pension arrangement may also contain money that has not yet been designated for drawdown, and different transfer considerations can apply to those funds.

Provider rules also matter. Even where a transfer is permitted under pension tax legislation, the receiving provider does not have to accept every type of transfer or offer every drawdown facility.

HMRC's recognised-transfer rules require all the sums and assets of the relevant drawdown fund to be transferred together. A transfer of only part of that drawdown fund would not normally qualify as a recognised transfer.

This does not necessarily mean that everything held within a wider pension scheme must always move. For example, there may be separate arrangements or funds that have not yet been designated for drawdown. The transfer will depend on how the pension is structured and the facilities offered by both providers.

If you are considering a partial transfer, ask your existing and prospective providers to explain which funds would move, which would remain and how the transfer would be treated before proceeding.

A lower headline charge does not necessarily mean a transfer will leave you better off overall. The combination of costs, investments, benefits, service and retirement-income facilities should also be considered.

A recognised transfer between registered pension schemes does not normally count as taking taxable income, although decisions about how you access benefits before or after the transfer can affect your tax position.

If you have already taken taxable income flexibly from your pension, you may have triggered the Money Purchase Annual Allowance (MPAA), which can restrict future contributions to defined contribution pensions. The Money Purchase Annual Allowance (MPAA) is a restriction on how much one can contribute to defined contribution pensions each tax year while still receiving tax relief. It is usually triggered when you begin taking taxable income flexibly from a pension, rather than simply taking tax-free cash.

Transferring your drawdown pension does not reset the MPAA if it has already been triggered.

Check the costs and transfer method

Your existing or new provider may apply charges, and investments may need to be sold before the transfer. If transferred as cash, your pension could be out of the market temporarily. Investment risk also continues after the transfer.

Before requesting a transfer, establish exactly what type of drawdown arrangement you hold and check whether the prospective provider can accept it.

A typical process may involve:

1. Reviewing your existing pension – check the type of drawdown, investments, charges, guarantees and other benefits.
   
   

2. Comparing the new arrangement – look at its costs, investment range, drawdown facilities and service.
   
   

3. Checking transfer requirements – establish whether the transfer will be made as cash or investments and whether any restrictions apply.
   
   

4. Applying to the receiving provider – the new provider will normally request information needed to arrange the transfer.
   
   

5. Allowing the providers to complete their checks – this can include regulatory and pension-scam checks.
   
   

6. Reviewing the new arrangement after transfer – check investments and any future income instructions once the transfer has completed.
   
   

Income payments or investment dealings may be affected while a transfer is being processed, depending on the providers and transfer method. Check how the transfer could affect planned withdrawals before starting.

Flexi-Access Drawdown vs Capped Drawdown

Most new drawdown arrangements set up since 6 April 2015 use flexi-access drawdown. Capped drawdown is an older form that can continue for people with qualifying arrangements from before that date.

Capped drawdown may be transferred while retaining its existing basis if the relevant conditions are met and the receiving provider supports it. Alternatively, it might be possible to convert to flexi-access drawdown during the transfer.

Converting can affect the income you can take and may have implications for the Money Purchase Annual Allowance once benefits are flexibly accessed, so check the receiving provider's options before transferring.

New Arrangements and Like-for-Like Transfers

For a drawdown transfer to meet HMRC's recognised-transfer conditions, the transferred fund usually needs to move into a new arrangement with the receiving scheme that contains no other sums or assets.

Where the funds continue in drawdown, they will need to do so on the same basis. Flexi-access drawdown therefore remains flexi-access drawdown, while capped drawdown will usually remain capped unless the member chooses to convert it.

Make sure the receiving provider knows that your pension is already in drawdown before starting the transfer.

Transfer Scam Checks and Red Flags

Pension providers and trustees carry out checks designed to reduce the risk of pension scams.

Warning signs can include:

• Unexpected approaches about your pension

• Pressure to transfer quickly

• Unclear or unusually high charges

• Complex or unregulated investments

• Promises that appear unrealistic
  
  
  

Concerns identified during the transfer process may lead to further checks, safeguarding guidance or the transfer being stopped.

Never feel pressured to transfer your pension following an unexpected approach.

Preserving Benefits and Guarantees

Before transferring, check whether your existing pension includes benefits that may not continue with the new provider, such as guarantees, protected pension rights, preferential charges or particular death-benefit or income features.

You should also consider whether a transfer will affect any existing advice or service arrangements. Once the transfer is complete, you may not be able to recover benefits specific to the old arrangement, so it’s important to understand what will be lost, retained or replaced before proceeding.

Transferring a pension that is already providing retirement income can have long-term consequences for your investments, charges, tax position and future income.

You may benefit from regulated financial advice if you:

• Are unsure whether transferring your drawdown pension is appropriate

• Have a capped drawdown arrangement

• Want to understand the tax implications of changing your drawdown arrangements

• Are concerned about losing guarantees or valuable benefits

• Depend on your pension to provide regular retirement income

• Need help comparing investments, charges and provider features

• Hold both crystallised and uncrystallised pension funds

• Are considering changing your investment or withdrawal strategy at the same time as transferring
  
  

My Pension Expert's experienced advisers can review your existing drawdown pension and the options available to you. They can help you understand the potential benefits, costs and risks of transferring and consider how any change could fit within your wider retirement plans.

This information is for guidance only and does not constitute financial advice. Pension and tax treatment depends on individual circumstances and may change in the future. Provider facilities and transfer requirements can vary. The value of pensions and investments can fall as well as rise, and you may get back less than you invest.