What caught my eye this week.

Fashion shop ASOS reported full-year results this week. Revenues were up a fifth and profits surged, as the online retailer found itself with a – cough – captive audience during lockdown.

In the mercurial way they are wont to do though, its shares actually slumped despite this good news.

Everyone knows business is booming for online retailers, and ASOS shares have been on a tear for months. So like a seasoned Tinder swiper, investors focused on the negatives.

ASOS’s management fears its 20-something customers are set to suffer more job losses. That’s even assuming they’ve got anywhere to get dressed up to go to, with much of the country lurching into increasingly ubiquitous ‘local’ lockdowns.

Also, customers have begun to return a lot of what they buy, just like they used to in the good old days.

For a few months earlier this year, a sort of Blitz spirit saw most shoppers buy only what they felt most likely to keep. But more than a few have now resumed their habit of ordering with abandon like Julia Robert’s Pretty Woman run wild in Rodeo Drive, only to return most of it to ASOS. That’s a big drag on margins.

I suppose it’s encouraging in a sense. A hint from the resilient younger generation that things will go back to normal someday, spendthriftery and all.

Office politics

I wondered about whether we’ve changed and what will go back to normal before. It still seems up in the air, at least from the perspective of UK citizens who find themselves restricted again. (I daresay the existential questions are less prevalent in virus-free South East Asia.)

One place where the narrative is especially all over the place is working from home.

I’ve read countless reports from property companies this year that talk a good game before admitting their offices are open, yes, but mostly empty.

And it wasn’t long ago that Boris Johnson was urging people to go back to work, eyeing city centers that remained more ring doughnut than jam-packed.

But even before the second wave, it wasn’t clear whether people actually wanted to go back to the office.

A study by UK academics found that 88% of employees who’d had a taste of working from home during lockdown wanted to continue to do so, at least in some capacity.

Nearly half said they wanted to mostly work from home in the future.

Set against that are regular soundings from those who are finding working from home a strain, if not depressing or distracting.

As one person quoted by Slate put it this week:

I didn’t think I would miss the office because I’m an introvert … until I was a few months deep into full-time WFH. I almost need the external accountability of going into the office.

Otherwise I tend to procrastinate and lose focus, and as a result I’ve really seen my work quality dip and my stress level go up as the months have gone on.

I recently got the opportunity to come back into the office on a part-time basis and I feel so much more productive and happy.

I have worked from home for most of the past two decades. I’ve long considered it one of the secret joys of modern life. (I did break the omertà and tell you so).

Everything is easier without a commute or crowds at the shops, and with most of your chores done during screen breaks.

Not to mention you’re more likely to be in for those online deliveries!

Well, that cat is out of the bag. We’ll see how many newfound freedom lovers can transition to at least partially working from home, and how many are made miserable when the option is snatched back from them.

What do you think? Let’s have a rare Monevator poll:

(If you can’t see the poll in your email please check it out on the Monevator website).

I don’t expect our readership to mirror the general population. But it’ll be interesting to see what you all think.

If homeworking is here to stay, then some companies face a reckoning. You can definitely run a business with many or even all your workers at home (I have) but it must be set-up that way for the long-term. Institutional memory and goodwill got firms through the first lockdown. But those are wasting assets.

Have a great weekend, as best you can where you are.

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You know you’re getting on a bit when YouTube targets you with pension transfer ads. At least it’s not burial plots I suppose. And the algorithm must know something about me, because I’m definitely feeling the urge to demystify the pension transfer process.

In principle you can transfer your UK pension to another registered UK pension scheme in your name without breaking the rules and getting clobbered with a massive tax charge.

In reality, the pension transfer rules vary between pension types and providers. The whole area is a minefield blanketed in a fog, mapped by Mr Muddle.

But the big question is: just because you can transfer your pension, does that mean you should?

This post is about transferring your defined contribution pension. You have come to the right place if you are considering transferring a SIPP, an occupational money purchase pension, personal pension, stakeholder pension, Nest / People’s Pension, and every other stripe of retirement money pot that doesn’t offer you a guaranteed income for life. What this post is not about is transferring a defined benefit pension. That is rarely a good idea, according to the FCA.

Should I transfer my pension?

It is often worth transferring your pension when you can access a cheaper, better scheme elsewhere, but there is no need to transfer it just because you have, for example, left your job. Your defined contribution pension is your personal money pot. It belongs to you regardless of whether you leave it alone to build up value until your retirement, or whether you move it with you to a new workplace scheme. There’s also no limit to the number of pensions you can have, bar being able to remember where they all are.

Good reasons to transfer your pension include:

• Moving all or some of your pension to a cheaper scheme that’ll save you a fortune in charges. Savings can include keener platform fees, fund management charges, or drawdown fees.

• Moving to a scheme with a better choice of investments, customer experience, or retirement options.

• Consolidating your pensions with a couple of providers because it’s easier to keep track of them and/or you’re charged less for a bigger pot.

Consolidation may not be a good idea if it means relying on a single provider to safeguard too much of your wealth. The Financial Services Compensation Scheme is likely to cover only the first £85,000 of your pension lost to fraud or some other form of mismanagement at each provider you’re with.

While such a disaster is unlikely, it’s worth thinking twice about single points of failure before succumbing to the siren calls to simplify your life.

It’s a very bad idea to transfer your pension if you’ll lose valuable benefits that aren’t supported by your new scheme. More on this in the next section.

Some people moving overseas also explore transferring their UK pension to a qualifying recognised overseas pension scheme (QROPS). This is a complex area where it’s worth getting advice.

• Where should I transfer my pension? See our cheapest online broker table for a list of platforms that offer the best value on SIPPs.

Can I transfer my pension myself?

Yes, you can transfer your pension yourself by filling in a pension transfer form with your new provider. It will then scamper off like an enthusiastic St Bernard and drag your old pension bodily to its new home.

However, it’s worth holding your St Bernards if your existing pension comes with any of the following benefits:

• More than 25% tax-free cash (available under pre-2006 rules)
• Loyalty bonuses
• Enhanced life insurance
• Additional death benefits
• Early retirement benefits (some old pensions allow you to access your cash before age 55)
• Guaranteed annuity rates
• Guaranteed returns
• Fund value underpins
• Fixed or enhanced Lifetime Allowance (LTA) protection
• Annual or maturity bonus

Your existing pension provider can tell you whether any special benefits apply to your scheme.

Typically your new provider won’t support these benefits. They are generally legacy perks that have been squeezed out of modern life, just like boozy lunches, flirting in the workplace, and hugging your nan.

It’s worth seeking financial advice before you give up any of these extra benefits. In some cases you may be required to show you’ve consulted an advisor before you can move your funds.

• See our article by financial advisor Mark Meldon for more on consolidating old pension plans.

Transfer pension from a previous employer

There is no need or requirement for you to move your old workplace pension just because you’ve changed jobs. It may actually be against your interests as described above. You don’t lose the value of the assets you’ve accumulated up to your leave date. And your holdings will continue to grow in line with investment returns, even though you’ve moved on.

Your provider may still allow you to contribute to the pension, you just won’t get a leg up from employer match or salary sacrifice anymore.

You should check that your pension won’t be charged higher fees once you leave your job, though.

Many people have left behind a trail of legacy pensions like buried treasure as they’ve sought adventure across different workplaces. Often a pension that looked competitive a decade ago may be subject to high-fee banditry today because nobody’s checking in on it.

Put a note in your digital calendar to review your legacy pensions every five years. Make sure the charges and benefits are still competitive versus your next best option. Check that your fund choices are still appropriate as the years fly by. Devil-may-care funds that made sense in your twenties could probably do with a downshift in your fifties.

Many pension providers now offer target-date funds that automatically lower the risk of your holdings as you glide towards retirement. These funds weren’t widely available a decade ago. It’s not inconceivable that the pension industry may come up with another useful innovation or two in the next ten years.

How to transfer a pension

To transfer your pension, check that your existing scheme allows you to transfer some or all of your pension pot, and check that your new scheme will accept the transfer.

When you’re ticking boxes on your pension transfer form (provided by the new provider) it’s particularly important that your assets are transferred in specie and not as cash.

In specie means that your funds and shares are transferred without being sold to cash first. In other words, they remain invested throughout the process.

If your investments are sold to cash, then you will be out of the market. That means you will miss out on gains if the market rises while you sit in cash. (It also means you’ll avoid losses if the markets fall, but we live by The Law Of Sod.)

If your new provider doesn’t offer the same funds as your old one, then those investments will be sold to cash and leave you out of the market.

In this instance, it’s worth doing a little research to see if equivalent funds exist that are supported by both providers. Then you can sell your old funds, buy into the new funds, tick the ‘in specie’ box, and probably spend much less time out of the market.

N.B. Some providers describe an in specie transfer as ‘re-registration’.

Other things to watch out for:

• Some new providers require you to transfer a minimum amount, especially if you’re in drawdown.

• Yes, you can transfer your pension once in drawdown. In fact you’ll probably be welcomed with open arms.

• You won’t be able to add new money or trade until the transfer is complete.

• Tell your old provider to close your account once the transfer is complete.

• Cancel your old direct debit.

• Your new provider should tell you when your account has transferred.

• Make sure you understand the charges that apply to your transfer. See the charges section below.

How long do pension transfers take?

Pension transfer times vary but most of the main platforms claim that electronic cash transfers will take around two weeks. Fund transfer times are quoted as 6-12 weeks, depending on the providers involved and how manual the process is.

AJ Bell Youinvest has published a reassuring table of transfer times, as below. Take it with a grain of salt because much depends on how efficiently and accurately the paperwork is exchanged between your providers. (As you can imagine, nobody over-staffs their transfer department, and regulation on transfer times is weak.)

Source: AJ Bell YouInvest

Even though cash transfers are much quicker, it’s still better to transfer in specie. That way you remain invested at all times regardless of whether your funds spend several weeks in a nether zone between providers.

Pension transfer charges

There are some specific fees that providers charge when dealing with pension transfers. It’s a good idea to ask each provider to list the charges that will apply.

Look out for:

• Exit fees: Your provider may charge you a lump sum for transferring your account, and/or closing your account, and a fee per investment you move e.g. per fund or stock. Often these fees are higher if you move your pension overseas.

• Entry fees: This is a pretty old-school fee. It is only levied by providers who aren’t that keen on new business.

• Dealing charges: You may be charged by both providers if you have to sell assets at one end, transfer cash, and buy again at the other.

• Platform fees: It’s possible to be charged two sets of platform fees as one provider claims they have received your funds while the other claims they haven’t let them go yet. This happened to me! I just shouted at them both until one eventually refunded. Obviously your new provider has the greater incentive to keep you happy.

Check how and when your old provider will refund your platform fees.

Ask your new provider if it will cover your transfer fees. It doesn’t hurt to ask. Also see if they’re running any cashback offers on transfers, or waiving platform fees for the first six months or so.

Pension transfer troubleshooting

Check that the right investments appear in your new account. Note your assets may not all materialise simultaneously. That can be as terrifying as a Star Trek transporter accident if you’re not expecting it. (Where’s my goddamn money gone?) I’ve had a tail-end fund turn up a month after the first. More rearguard than Vanguard!

To reduce stress:

• Record your holdings at your old provider before you start the transfer. Take a screenshot, or download a statement or spreadsheet of your investments.

• Record fund names, codes, prices, and quantities held. If there should be a dispute later then you will know exactly what you own. You can kick up a stink if anything’s gone walkies.

• When your funds arrive, match the new provider’s ‘buy’ price against the ‘sell’ price on your old provider’s exit statement. You can cross-reference those against prices quoted by an independent financial data provider like Morningstar.

Having a full record of ownership will neutralise the anxiety if you get caught in a ‘he said, she said’ dispute between two providers eager to blame each other if things go awry.

Some Monevator readers have reported transfers taking months to complete due to foul-ups. You can spend hours on the phone talking to inexperienced call centre agents about where the hell your fund is, or you can wait a while on the assumption that the fund exists somewhere and it will turn up again sooner or later.

The best bet is to keep your instructions as simple as possible. Document everything, create a paper trail, and don’t expect the customer service dept to be staffed by Jeeves-level problem-solvers.

Ask your old provider to confirm in writing how it will treat tax relief and dividends that are paid to them after your account has transferred. They may receive cash on your behalf after your online account has disappeared. Check in and chase any cash payments you believe you’re owed.

Be sure you definitely want to transfer if I haven’t put you off already. Although you do have 30 days to change your mind, the FCA say that your old provider does not have to take you back. Even if they do return you to the fold, they do not have to honour any special benefits you were previously entitled to.

Don’t transfer your whole pension if your employer is still making contributions to it. You are allowed to partially transfer any amount of your current employer’s pension, subject to your new provider accepting the transfer. This can set up some sneaky cost arbitrage that we’ll come back to in a follow-up post.

Don’t try and market time your move. You should be invested the entire time anyway if you transfer in specie. Otherwise, don’t imagine you can predict how tensions in the South China Sea or the next mad presidential tweet will affect the stock market. Transfer for rational reasons, take the precautions above, and otherwise let the process run its course.

Small Pots: If you transfer small pot pensions worth less than £10,000 into an account valued at over £10,000 then you may lose the option to take the small pots as a cash sum. It’s also possible there may be issues with taking small pots from certain pension types if they’ve been transferred within the last five years. Check this with your providers before transferring small pots.

Death or divorce!

…as Mrs Accumulator often exclaims of an evening.

You can’t transfer your pension to another person except through death or divorce.

You may have trouble transferring your pension if it’s subject to a court order – perhaps because it’s being divvied-up in a divorce settlement.

The two-year pension rule: If a person in serious ill-health dies within two years of transferring their pension then HMRC may claim they only did it to avoid tax. Some people! Such a verdict can create an inheritance tax liability on the pension.

To save myself from crossing the event horizon of a tax law black hole I’m going to transfer you to a nightmarish article on the topic and a report on a Supreme Court ruling that may make the issue go away. (It’s really impossible to tell though as with any black hole the laws of physics seem to break down once inside.)

Lost pensions: You can track down your scattered pots using the government’s pension tracing service. Hopefully it works better than that other tracing service it runs.

Happy transferring! Please tell us about your pension transfer experiences in the comments.

Take it steady,

The Accumulator

What caught my eye this week.

Switching from saving to spending can be tricky for self-directed investors.

In the old days the transition was easier. You stopped working, drew a pension controlled by your previous employer, stared at the carriage clock you’d been given on your last day and wondered where all time went, and then died too few years later.

(Okay – easy-ish!)

Today, though, final salary¹ pensions are an endangered species. Saving for yourself means more complication on the way up, because you’re responsible for figuring out how much to put aside to invest for your retirement.

It also puts more of a burden on you to figure out how much you can spend a year on the way – ahem – down.

These aren’t simply mathematical problems, or even questions of risk.

With a little effort, most people can devise an investment plan to save for retirement.

And while low yields from fixed income have muddied the waters, in principle working out what you can withdraw and spend from your portfolio in retirement is also doable.

You make a few assumptions, put them into a calculator, and out pops your annual living allowance. Sure you’ll be roughly wrong as much as roughly right, but you can course correct along the way.

A state pension takes the edge off running out of money too soon, too.

Spenders versus savers

There is a further, less-discussed challenge with retirement spending though: the mental jujitsu required to turn from being a lifelong saver into a rest-of-life splurger.

Those still saving their way out of the rat race may dismiss such concerns. And statistics do suggest it’s not hard for everyone.

According to the Association for British Insurers:

The average rates at which people are withdrawing money from their pension could see people running out of money in retirement if they do not have other sources of income.

Full withdrawals have risen to their highest level since [pension] freedoms were introduced: 40% of withdrawals were at an annual rate of 8% and over, which is not sustainable.

Clearly a significant chunk of the population are used to spending most of what they can, and retirement doesn’t change that. The only (good) reason they were able to build up their pensions in the first place was because they couldn’t get at the money.

But the sort of people who regularly read Monevator are cut from a different cloth.

Many of us remember the travails of the blogger SexHealthMoneyDeath. Among other things, he found the transition to spending so hard he went back to work. I know I’m not the only person who wonders what happened to RIT, too.

Hopefully he’s living it up in Australia and is too busy to tell us about it!

Seize the day, boys²

But this unusual year is changing some perspectives, I believe. Maybe it’s helping motivate a few reluctant spenders?

I mentioned a while ago I’d decided to quit my main source of income. That longstanding contract came to an end a few weeks ago. For now I’m effectively living off my investments. For various reasons I don’t really like doing this, and I don’t think it will last. But I don’t believe it would have happened at all without six months of on/off lockdown introspection.

Of course The Accumulator is also now financially free and pondering what next.

So it’s in the waters around here…

Retiree Dennis Friedman wrote this week at Humble Dollar that he hardly recognises the spender he’s become:

I woke up one morning, looked in the mirror and didn’t recognize the person looking back at me. Who is this person? It can’t be me. I’m not the same person I was five or six months ago. I don’t know if it’s the pandemic that caused me to behave differently or if I’m going through some kind of midlife crisis.

No, it can’t be a midlife crisis. I’m almost 70 years old, plus I don’t feel my life is boring, empty or meaningless. In fact, I actually feel good about myself and my life.

Instead, what I don’t understand is why I have a different attitude toward money. All my life, I’ve been a supersaver [but] recently, I’ve been spending gobs of money in ways I never would have in the past.

Dennis’ piece is a modest and self-aware reflection on how one man found he’d broke through the barrier. Worth a read if you’re in a similar position.

Meanwhile at Bloomberg Farnoosh Torabi tells us she has changed her views and now plans to die with an empty bank account – so clearly she’s gotten over the hump:

If 2020 has taught us anything it’s that life is uncertain. Through this lens, I’ve started to abandon some conservative personal finance principles.

This summer, for example, I went against the adage of “staying the course” with retirement and stuck my hand in my IRA to shed some stocks. I also bought a house in what can be considered a risky environment. To date, I have no regrets.

In my latest move away from what many financial experts preach, I’ve forgone the aspiration of leaving a financial legacy. The concept of bequeathing an inheritance just seems to make less sense today.

Instead, I want to experience my legacy by spending most, if not all, of my money on meaningful experiences and investing in the people and causes I believe in — all before I leave Earth.

I like that word ‘uncertain’ in this context.

Some people push back against the idea that Covid-19 has changed us with statistics about how few people – especially not even vaguely old people – have died of it.

I agree. That’s not the main point, however. I believe it’s by revealing how fragile our day-to-day ways of living are – by revealing the assumptions and obligations we live by – that the pandemic has given many people a few existential moments.

That is, it’s not so much the loss of life as the lockdown.

For most readers (and ultimately for me, for that matter, I hope) the full-on shift to spending down savings remains many years away.

But if 2020 has logged a carpe diem reminder into our memory banks, it yet could prove useful when that day comes.

Have a great weekend!

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1. A.k.a. ‘defined benefit’ [↩]
2. And girls, obviously. Quoting Dead Poet’s Society. [↩]