Should I consolidate my pensions?

By Chartered Financial Planner, Craig Howard

Over your career, you may work for many different employers, so may build up a collection of various pension pots. You might also have personal pensions, especially if you’ve spent time self-employed. In certain cases, consolidating them could prove beneficial.

Pension consolidation is when you combine two or more pensions into one pot. You may decide to do this as you approach retirement or during your working life for a variety of reasons.

Working out the best thing to do with your pensions isn’t a straightforward decision and depends on several factors, including what type of pensions they are, how much they are worth, and whether they currently have any special guarantees attached.

Let’s look at why consolidating your pension could make sense, as well as the reasons why it may not be right for you.

Why should I consolidate my pension?

• Keeping track of and managing your pension savings is easiest with just one pot
• You could potentially gain access to a wider range of investments if you’re consolidating your pension pots into a Self-Invested Performance Pension (SIPP)
• You could end up paying less in overall charges if you put your money into a pension with competitive fees compared to an older plan with high charges.

Why should I choose not to consolidate my pension?

• Some schemes will still have exit penalties, so switching your money out will decrease the size of your pot
• Older pots may have some attractive features that you’ll lose if you transfer out, for example: early access, more than 25% tax-free cash or guaranteed annuity rates
• Transferring out of a final salary pension is rarely a good idea due to the loss of guaranteed, inflation proofed income and a pension for your spouse. You will need to receive specialist financial advice before doing so
• There are other tax advantages of keeping pots separate – you can take three pots of up to £10,000 which are deemed ‘trivial’ and don’t trigger a cut in your annual allowance due to the Money Purchase Annual Allowance (MPAA) rules.

Please keep in mind that taxation and regulation can be complex, subject to individual circumstances, and may change. If you think you may be affected by the MPAA, please contact a financial specialist to discuss your options.

All of this is a lot to think about, especially alone. There is no universal right answer when it comes to transferring pensions, which is why tailored advice is so important. As Chartered Financial Planners, we’re here to take away the stress, provide answers for your worries and work alongside you, to ensure you’re on track to meet your goals. We’ll put your interests first, take time to find out where you are now, where you want to be and then we’ll strive to get you there. What’s more, we’ll take it at your own pace, ensuring you are informed every step of the journey – checking in with you regularly and making sure your plans are on track.

If you have questions about whether pension consolidation could make sense for you, or whether you’re on track to enjoy the retirement you want, please contact us on 01904 661140, or alternatively, email enquiries@pen-life.co.uk. Request our FREE ‘Pension Consolidation’ guide by clicking here.

Please note:

The FCA does not regulate, tax planning, estate planning, inheritance tax planning, cashflow modelling or wills. The value of your investments can go down as well as up, so you could get back less than you invested.

All information is correct at the time of writing and is subject to change in the future.