Transferring pensions may result in losing existing benefits, such as higher tax-free cash or guaranteed annuity rates.
Some old legacy schemes offer scheme-protected tax-free cash, linked to workplace pensions and your salary at the time. Despite changes in 2006 for more flexibility, some policies still allow more than 25% tax-free cash, with some offering up to 97%. In these cases, the advice could be to diversify the funds according to your risk attitude but not to move them. Upon retirement, you can take the cash out without paying income tax on most of the pension pot, though the tax-free cash must be taken all at once.
Many older schemes from the 1980s and 90s offer guaranteed annuity rates. Some people consider transferring these pensions due to perceived low value, but we've found very high annuity rates, sometimes as high as 11% or 12%. Even with a pension value of just £40,000-50,000, the income offered is substantial. In these cases, it could be advisable to keep these plans until maturity to benefit from the guaranteed income. Prevailing tax rates and reliefs depend on your individual circumstances and are subject to change.