Are Pension Transfers Classed as Payments?

At first glance, the question “Are pensions transfers payments?” might seem like a straightforward query.

But it touches on a broader misunderstanding about how pensions and transfers work - especially in the context of financial planning, taxation, and retirement income.

In this article, we’ll clarify the difference between a pension transfer and a pension payment, explain how transfers work in the UK pension system, and guide you through what it means for your retirement strategy.

Whether you’re nearing retirement or managing multiple pension pots, understanding this distinction can help you make better-informed decisions.

Understanding Pension Transfers vs. Pension Payments

To address the question directly: No, pension transfers are not the same as pension payments.

Let’s define each term to understand why:

What Is a Pension Transfer?

A pension transfer involves moving your pension savings from one pension provider or scheme to another. This could be:

• From a workplace pension to a personal pension.

• From one defined contribution (DC) provider to another.

• From a defined benefit (DB) scheme to a DC scheme.

• From multiple pension pots into a single consolidated scheme.

Pension transfers are typically done to:

• Gain better investment options

• Access flexible drawdown in retirement

• Consolidate pension pots for simplicity

• Move away from underperforming or high-fee schemes

A transfer does not mean you are withdrawing money or receiving income. It’s a movement of funds between pension providers, kept within the pension wrapper, and typically tax-free when handled correctly.

What Is a Pension Payment?

A pension payment, by contrast, refers to money paid to you from your pension when you access it. This could be in the form of:

• A monthly or annual income, such as from an annuity or drawdown

• A lump sum, such as the 25% tax-free cash most pension schemes allow

• Regular withdrawals from a flexible pension pot

Once a pension starts paying you money, it has entered what’s known as the crystallisation phase, and these payments may be subject to income tax.

Why This Confusion Happens

The confusion arises because many people consider transferring their pension as part of accessing it. For example:

• Someone moves their DB pension to a flexible-access DC scheme.

• They then begin to draw income from it.

In this scenario, the transfer is not the payment - the payment comes later, when the person starts drawing funds.

But because both actions often happen close together, they’re sometimes conflated.

Are Pension Transfers Ever Considered Income?

No, not in the UK, provided the transfer is made correctly.

A direct transfer between registered UK pension schemes is not classed as income. It does not appear on your tax return as a withdrawal and has no impact on your current income tax position.

However, if the transfer is not handled properly, it can trigger tax consequences. For example:

1. Cashing Out Instead of Transferring

If you take your pension as a cash lump sum and then try to reinvest it into a new pension, HMRC will treat that initial withdrawal as income. Only the first 25% is tax-free; the remainder is taxed at your marginal income tax rate.

2. Overseas Transfers (For Reference)

While we’re focusing on UK-specific scenarios, be aware that transfers to non-UK schemes can attract tax charges. But for transfers within the UK pension system, no income is generated during the transfer.

What Happens During a Pension Transfer?

Here’s a simplified breakdown of the pension transfer process:

1. Request a transfer value from your current provider (especially if it’s a DB scheme).

2. Choose your new provider or scheme.

3. Complete necessary paperwork, including transfer authorisation.

4. Funds are moved directly between schemes.

At no point should the money land in your personal bank account, if it does, it will be considered a withdrawal, potentially triggering tax and losing pension protections.

Transfers can take between 2 and 12 weeks, depending on the schemes involved and whether financial advice is required (e.g. for DB pensions over £30,000).

Does a Pension Transfer Trigger Tax?

Typically, no tax is due if:

• The transfer is between registered pension schemes in the UK.

• No pension benefits have been accessed before the transfer.

• The transfer is not a withdrawal but a direct scheme-to-scheme move.

However, there are some indirect tax considerations to be aware of:

1. Lifetime Allowance (LTA)

The LTA was abolished in April 2024, but historic crystallisations (when you began accessing pensions) may still influence tax-free cash calculations and lump sum limits.

2. Money Purchase Annual Allowance (MPAA)

If you’ve already accessed a flexible pension and triggered the MPAA, your future pension contributions are limited to £10,000 per year. Transferring doesn’t trigger the MPAA—but taking income does.

What About Defined Benefit Transfers?

If you’re in a DB scheme and choose to transfer out, you’ll receive a Cash Equivalent Transfer Value (CETV). This is a lump sum designed to reflect the value of your future guaranteed income.

Important notes:

• The CETV is not a payment to you—it’s a transfer value, moved into a new pension scheme.

• You do not receive income until you start drawing down or buying an annuity from the new scheme.

• Transfers from DB schemes must be advised by a regulated financial adviser if worth over £30,000.

While this transfer gives you more flexibility, you also lose the certainty of guaranteed income.

Common Pension Transfer Myths

Let’s dispel a few common misunderstandings:

“Transferring my pension means I’ll get the money now.”

False. Transfers move your pension to another scheme. You only receive money once you start drawing from the pension.

“If I transfer, I’ll be taxed.”

Not necessarily. Transfers between registered UK schemes are tax-free. You’re only taxed if you access the money directly.

“Pension payments and pension transfers are the same thing.”

Incorrect. Transfers are administrative actions. Payments are income.

“If I move my pension, I’ll lose money.”

It depends. Some pensions may have exit fees or lost guarantees (especially DB schemes). However, moving to a more cost-effective, flexible pension could benefit you over time. It’s all about the details.

When Might a Pension Transfer Be Right for You?

Here are situations where a transfer might make sense:

• You have multiple DC pensions and want to consolidate them.

• Your current pension has limited investment choices or high charges.

• You want to access flexible income drawdown.

• You want to pass your pension on to beneficiaries more easily.

• You’re comfortable giving up a DB guaranteed income in exchange for greater flexibility.

But always seek professional advice before proceeding - particularly with large pensions or DB schemes.

When Should You Avoid Transferring your Pension?

Transfers aren’t always suitable. You might want to avoid a transfer if:

• You’re in a strong DB scheme offering inflation-proof, guaranteed income.

• You’re unsure how to invest post-transfer.

• You’re close to retirement and want to avoid market exposure.

• Your current scheme has valuable benefits (e.g. protected tax-free cash, guaranteed annuity rates).

What Belgravia Capital Can Do for Pension Transfers

At Belgravia Capital Wealth Management, we specialise in helping clients:

• Understand the pros and cons of pension transfers

• Maximise pension efficiency without triggering tax

• Plan retirement income around your goals and risk tolerance

• Protect your wealth and legacy for the long term

We ensure that every pension decision - whether it’s a transfer, drawdown, or combination of strategies - is made with clarity, compliance, and confidence.

So, are pensions transfer payments?

No, transfers and payments are two separate things. A transfer simply moves your pension pot between schemes. It does not mean you’re accessing the funds or receiving income.

Understanding this difference is essential if you want to avoid unexpected tax charges, preserve your retirement savings, and make decisions aligned with your long-term goals.

As pension rules evolve and financial markets fluctuate, there’s never been a better time to seek expert guidance.

Speak to a Pension Transfer Specialist Today

If you’re considering a pension transfer and want to understand the implications for your income, tax position, and retirement future, we’re here to help.

Email us at contact@belgraviacapital.co.uk

Let Belgravia Capital Wealth Management help you navigate pension transfers with insight and confidence.