Steps to request the transfer of a pension plan

The internal transfer of a plan is a free process incurring zero fees or fiscal penalties

Pension plans, as well as assured benefit plans (PPAs) are future savings instruments that allow consolidated rights (the capital deposited and possible yields) to be transferred from one product to another, even across different managers or banks. Moreover, there is the possibility to transfer the money from a pension plan to a guaranteed benefit plan and vice versa.

The transfer is a totally free process that does not involve payment of fees or any type of tax penalty. In fact, the holder of the pension plan can decide to move part of their capital or all of it - the so-called consolidated rights - in a simple process that can be repeated as many times as the customer sees fit. In the case of guaranteed benefit plans, it is important to consult the value of the shares at which the transfer would be made, given that the guarantee only applies at the plan's maturity date.

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To do so, the holder must inform the management company that will receive the transfer (destination entity) of the details of the transfer: the amount of capital to be transferred, what product to transfer it to and what product the consolidated rights will come from. It is important to highlight that the transfer must be initiated by the company that will receive it and not the contrary.

By law, this process can not take more than five business days if the transfer happens across managers or three business days if the transfer takes place across products under the same manager.

Exceptions to the transfer of capital

There are several instances in which this transfer cannot take place:

  • The capital of employee pension plans cannot be transferred, except if the employment relationship with the company through which the plan was taken out no longer exists.
  • Currently, it is not possible to transfer the consolidated rights between pension plans of different countries, except for in very restricted cases of UK pension plans that may be transferred to a collection of pre-authorized Spanish pension plans if a series of requirements are met.
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Reasons for transfering a pension plan

There are several occasions in which it can be advisable to transfer a pension from one entity to another or to change the type of plan.

On the one hand, there are managers that pay a bonus for transferring the consolidated rights from one entity to another, although this kind of operation tends to be subject to other obligations that the customer must take into account. It is important to assess that the change really suits our needs in the medium and long term and to try to not let ourselves be seduced by the bonus alone.

In addition, one of the main reasons to make a capital transfer is a change in the desired investor profile. Every pension plan responds to an investment profile, depending on what financial products it invests in and therefore the level of risk to which it can be subject is different.

In general, there are three investor profiles based on the risk that can be assumed: conservative, moderate and resolute. For each of these profiles, a certain type of pension plan is recommended: whereas for the youngest customers it is appropriate to invest in equity pension plans that have higher potential gains, even though they are subject to a greater risk, for investors that are closer to retirement age the most appropriate option is to take out a pension plan that invests in fixed-income assets, with a lower potential return but with greater security, since there is no margin to assume unnecessary risks at a time when the investment's goal is so close.

Therefore, a typical example of a saver is usually one who adopts a resolute investor profile in their youth, taking out a pension plan that invests in equities, and who gradually transfers the rights they have acquired to a more moderate pension plan as the years go by and, finally, to a conservative type of plan.

As long-term saving products, pension plans are instruments that adapt to every customer profile according to their risk profile and yield expectations.

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