Managing your retirement savings – Consolidating your separate pensions into one single pension wrapper
If you’ve accumulated numerous workplace pensions over the years from different employers, it can be difficult to keep track of how they are performing. People now have an average of 11 different jobs during their career, and will often be enrolled into a new pension at each workplace.
The process of bringing all your pensions together is called ‘consolidation’.
Why are the possible benefits of consolidating my pensions?
- You’ll only have to deal with one provider which could make life simpler – you’ll only have to keep your eye on one pension which can give you a better understanding of your current pension savings and enable you to calculate additional saving you may need to make before you retire.
- If you decide to buy an annuity when you want to take benefits, you’ll only receive one payment each month (if you choose to have your income paid monthly). This can feel more familiar as it will probably mirror how your salary was paid.
- Having only pension means you can choose a single plan which matches your appetite for risk, and how you want your money invested. It is important that you understand how your money will be invested and how the investments have performed in the past. However, remember that returns are never guaranteed, and past performance isn’t necessarily indicative of future results.
- If you’re likely to buy an annuity, you could receive a better annuity rate as your account will be bigger, and some companies offer better rates depending on the size of your pension account.
- You may benefit from lower charges.
This is not an exhaustive list of the possible benefits and if you are interested in consolidating your pension accounts, you should obtain professional financial advice.
What issues should I consider before deciding to consolidate?
- Check for penalties and exit fees. Some providers charge a percentage of your pension savings if when you transfer your account from one provider to another.
- Some companies offer ‘Guaranteed Annuity Rates’, and these can provide a much higher income than today’s annuity rates might offer. Any ‘Guaranteed Annuity Rate’ could be lost if you consolidate your pensions – you should check with your pension provider.
- If you’re in a final salary or defined benefit scheme, you don’t need to buy an annuity because final salary pensions aim to provide a known and guaranteed level of cover. If you are in one of these schemes, stop to think about what you may be moving away from. Transfers can now only be made from funded final salary schemes so it is not possible to transfer out from an unfunded public sector scheme.
It could still make sense to consolidate
As you approach your retirement, your pension pots may have appreciated significantly, and you may decide that any exit penalties or fees for advice represent significant disincentives to act. However, if you’re unhappy with your existing arrangements and your funds are letting you down, it could still make sense to consolidate.
You may still have ten or fifteen years to go, and consolidation now gives you the added benefit of having all your money in one place for the purpose of buying an annuity or putting your money into income drawdown.
There are advantages to consolidating your pensions, but there are also pitfalls. The most suitable course of action may depend on what kinds of pension you have and how long you have until retirement.
If appropriate to your particular situation, it may be good not to have ‘all your eggs in one basket’. There are times when diversification is an important consideration.
Considering consolidating your pensions?
It is important to remember that you might not benefit from transferring your pensions all into one place. If you’re considering consolidating your pensions, it’s important to weigh up the benefits and drawbacks. Pensions and tax rules are complex, and normally it is not possible to recover your original pension arrangements if you change your mind.
To discuss your situation and ensure that you don’t lose any valuable benefits, please contact us.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.
Your pension income could also be affected by interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.