Pension Transfers Red Flags

Pension transfers can offer more control, better investment choices, and tax advantages—especially for expats and high-net-worth individuals managing retirement across borders.

However, moving your pension isn’t always safe or beneficial. Hidden fees, unregulated schemes, and misleading advice are just a few pension transfers red flags that could put your retirement savings at risk.

If you are looking to invest as an expat or high-net-worth individual, which is what I specialize in, you can email me (hello@adamfayed.com) or WhatsApp (+44-7393-450-837).

This includes if you are looking for a second opinion or alternative investments.

Some facts might change from the time of writing. Nothing written here is financial, legal, tax, or any kind of individual advice or a solicitation to invest.

In this article, we explore the key warning signs to watch out for when considering a pension transfer.

What is a Pension Transfer?

A pension transfer is the process of moving retirement savings from one pension scheme to another.

This may involve switching between different types of pension plans or transferring funds across borders, especially for individuals living or retiring overseas.

There are several reasons why someone might consider a pension transfer:

Each pension transfer decision must be carefully evaluated, particularly in terms of tax implications, fees, and long-term financial goals.

Can I Transfer My Pension Plan?

In most countries, transferring a pension plan is possible, but the rules and processes vary depending on your home country, current pension provider, and destination plan.

It’s important to check whether your pension scheme allows transfers and whether the receiving plan is compatible.

Who is eligible to transfer pensions?

Generally, you may be eligible to transfer if you have:

• A private or occupational defined contribution plan, which often allows transfers to other domestic or international schemes
• A company pension from a former employer, especially if you are no longer employed there
• A government or civil service pension, although these are often restricted and may not be transferable at all
• A retirement plan in a tax-advantaged account (e.g., 401(k) in the US, RRSP in Canada, SIPP in the UK), which may have portability options depending on the destination country

You are usually not eligible to transfer:

• State pensions (e.g., Social Security in the U.S., Japan’s National Pension, UK State Pension), as these are not designed to be transferred
• Pensions already in payment, depending on the provider’s rules

Legal rights and restrictions

The legal framework around pension transfers varies by jurisdiction:

• In the US, you can roll over a 401(k) to an IRA or another 401(k), but transferring to a foreign pension is complex and may trigger taxes
• In the UK, pensions can often be transferred to overseas schemes (like QROPS), but must meet regulatory conditions and sometimes require FCA-authorised advice
• In the EU, cross-border transfers are possible under certain conditions, especially under the EU IORP (Institutions for Occupational Retirement Provision) directive
• In Australia, superannuation funds can be transferred to other domestic schemes, but overseas transfers are highly restricted

Always check:

• Whether your current provider allows partial or full transfers
• If there are exit fees, penalties, or lock-in periods
• Whether your new plan meets the regulatory and tax requirements of your new country

What are Pension Transfers Red Flags?

Transferring a pension can offer flexibility, especially for expats and HNWIs managing cross-border assets.

But it’s crucial to remain vigilant for red flags that may signal risk, fraud, or regulatory issues.

Unusual Schemes or Unsolicited Advice

Be cautious if you’re approached with investment opportunities that seem too good to be true—especially by advisers you didn’t contact. Common warning signs include:

• Promises of high returns with low risk
• Offers to unlock your pension before the legal retirement age (often illegal in many countries unless under special circumstances like ill health)
• Cold calls, emails, or social media messages offering to manage or transfer your pension
• Advisers pressuring you to act quickly or invest in offshore schemes without disclosing full risks

These are common tactics in pension scams, and regulators worldwide—including the UK’s FCA, Australia’s ASIC, and the US SEC—regularly warn the public against them.

Non-Compliance with Local or International Regulations

Pension transfers, especially those involving cross-border movement of funds, must comply with the rules of both the transferring and receiving country. Key areas of concern include:

• Transfers to schemes that are not approved or regulated by financial authorities
• Schemes that lack transparency in fees, asset allocation, or legal protections
• Using tax avoidance structures or transfers that could trigger penalties, tax liabilities, or criminal charges

Always check if the provider is registered with your local financial authority.

Also check whether the destination scheme is recognized by tax authorities, such as HMRC’s list of QROPS (Qualifying Recognised Overseas Pension Schemes) if you’re transferring out of the UK.

Unclear or Complicated Transfer Processes

A trustworthy pension provider should have a transparent and clearly defined transfer process. Be wary of situations where:

• You’re given incomplete or vague documentation
• It’s unclear where your money is going or how long the transfer will take
• The provider refuses or delays sharing written terms, fees, or tax implications
• The process involves unnecessary intermediaries or offshore accounts

If you’re not receiving straightforward information or are unsure about the steps involved, it may be a sign of misconduct or mismanagement.

Tip: Always consult with a reliable, licensed financial adviser with cross-border pension experience, and verify their credentials through a government or regulatory website.

A second opinion is always worth the effort when your retirement savings are on the line.

How Much Is the Fee for Pension Transfer?

• Exit Fees: Providers charge 1% to 5% for leaving their scheme, which means for a £50,000 pension pot, fees range from £500 to £2,500. For individuals over 55, the exit fee is capped at 1%.

• Transfer Fees: These fees, covering the administrative cost of the transfer, can either be a fixed amount or a percentage of the pension pot. Some providers may offer free transfers.

• Adviser Fees: Professional advice is required for defined benefit schemes over £30,000. Fees can range from several hundred to several thousand pounds, depending on the complexity of the transfer.

• Fund Exit Penalties: Certain pension investments charge penalties for early withdrawal.

Accessing a pension before the age of 55 without qualifying exceptions (e.g., ill health) could result in up to 55% tax charge.

Pension Transfer Tax Implications

Possible tax charges in both home and destination country

When transferring pensions internationally, tax charges may apply in both the country where the pension is based and the country where it’s being moved.

The amount of tax depends on factors such as the type of pension, the countries involved, and any relevant tax treaties.

Avoiding double taxation with treaties

Many countries have tax treaties to prevent double taxation, meaning you won’t be taxed on the same pension amount in both countries.

It’s crucial to check if such treaties exist between your home country and the destination country. Seeking professional advice ensures that the transfer complies with both local tax regulations.

Pension Transfer Limit

When it comes to pension transfers, the rules and restrictions vary depending on the country and the pension scheme involved. Here’s what you need to consider:

Lifetime Allowance and International Transfers

The concept of a Lifetime Allowance (LTA)—which places a cap on how much you can accumulate in a pension without facing additional tax penalties—exists in certain countries, including the UK.

However, many countries do not impose such a cap on the total pension pot. Instead, they might limit how much you can contribute annually or how much you can withdraw at certain times.

For high-net-worth individuals and expats with multiple pension plans across different countries, cross-border pension planning becomes important.

Pension transfers between countries may also trigger tax consequences depending on:

• Whether the receiving country allows transfers into foreign pension schemes
• Any tax penalties or exemptions based on the transfer amount
• Whether pension pots in multiple countries contribute to an overall limit or each country has its own rules

For example, in some jurisdictions, transferring funds into a new pension scheme could result in taxable events, especially if the transfer exceeds certain thresholds.

It’s crucial to consult with an international tax adviser when considering large cross-border pension transfers.

How to Protect Your Pension in Transfers

Protecting your retirement plan requires careful consideration and expert guidance.

The best way to avoid the red flags in pension transfers is by working with a reliable, regulated financial advisor who understands the complexities of global retirement planning.

With the right advice, you can ensure that your pension transfer is both safe and beneficial for your long-term financial security.

Is it Worth Transferring Pensions?

Deciding whether to transfer your pension is a significant financial decision—especially for expats and high-net-worth individuals with complex financial portfolios.

While a pension transfer can offer flexibility, tax benefits, and access to better-performing investments, it also carries potential drawbacks.

A thorough assessment of your goals, jurisdiction, and the nature of your pension is essential.

Benefits of transferring pension

1. Access to Better Investment Opportunities
   Transferring your pension may allow you to choose from a wider range of funds, including international and diversified portfolios, depending on the new provider or jurisdiction.
2. Consolidation of Multiple Pensions
   If you’ve worked in several countries or switched jobs often, consolidating pensions into a single scheme can simplify management, reduce fees, and improve visibility.
3. Tax Efficiency
   Certain jurisdictions offer more favorable tax treatment for pension income or investment growth. Transferring can help reduce future tax liabilities—if structured properly and within the rules of both countries.
4. Currency Flexibility
   Some pension transfers enable you to receive payments in a currency that aligns with your country of residence or financial goals, helping avoid forex risk.
5. Estate Planning Benefits
   Some international pension schemes allow you to pass on remaining pension funds to beneficiaries with fewer restrictions or taxes compared to domestic pensions.

Pension Transfer Risks

1. High Costs and Fees
   Transfer costs can include adviser fees, exit penalties, fund switching charges, and ongoing management fees. These can erode your returns if not carefully evaluated. (See section: How Much Is the Fee for Pension Transfer?)
2. Loss of Guarantees
   Defined benefit (final salary) pensions often come with valuable guarantees (like inflation protection or survivor benefits). Transferring out may result in losing these perks.
3. Tax Implications
   Some transfers can trigger immediate tax liabilities or reporting requirements—especially if moving between tax jurisdictions without tax treaties.
4. Regulatory Risks
   Not all receiving pension schemes are equally regulated or protected. Transfers to unrecognized or unregulated schemes may expose you to fraud or poor governance.
5. Exchange Rate Volatility
   If you transfer into a scheme in a different currency, market fluctuations could impact your retirement income over time.

Pained by financial indecision?

Adam is an internationally recognised author on financial matters with over 830million answer views on Quora, a widely sold book on Amazon, and a contributor on Forbes.