Should You Consolidate Your Pensions?

On average, individuals in the UK will now have 11 different jobs during the course of their working life. This often results in many of us having a number of pension plans with different employers and providers which can be difficult to keep track of. This could mean that some individuals may not know exactly what pension provisions they have built up or if they are likely to meet their retirement goals.

One of the most common questions we as Financial Advisers get asked is, “Should I consolidate my pensions into one?” This question has become even more relevant since 2012, when auto-enrolment was introduced. Auto Enrolment forced employers to opt their employees into a pension scheme and then assists them by contributing towards their retirement. For those who have had multiple jobs throughout your career, you will have collated even more pension arrangements as a result of auto enrolment that perhaps you would have before.

What is pension consolidation?

So, what does pension consolidation mean? To put it simply, this is an exercise whereby you bring all of your pensions together. This can be done by merging two or more of your existing polices into the same plan or it may be better for you to collate these in a new plan altogether.

Is consolidating my pensions right for you?

Firstly, consolidation may not be appropriate for everyone so each case should be assessed individually. Here at Tideway, we have helped many individuals through this exercise over the years and is certainly something we would consider to be one of our specialist subjects. Analysing and evaluating your pensions accurately can be difficult and we would always encourage individuals to obtain regulated financial advice.

Potential Benefits of Consolidating Pensions

Pension consolidation certainly has benefits with many individuals valuing the simplicity of having all of their pensions in one place. By consolidating your pensions into one:

Potential Reasons Not to Consolidate

A Guide on Pension consolidation: Key Considerations When Merging Pensions

When assessing if individuals should look into consolidating their pensions, there are a number of factors Tideway would take into account such as; 

What type of pension arrangement is it? 

Defined Benefit Pensions (DB) such as final salary pension and career average revalued earnings (CARE) schemes provide valuable guarantees such as a level of secure income in retirement, normally linked to inflation. Whilst these types of plans are less common nowadays, they are complex and require specialist financial advice if you are considering a transfer away from this arrangement.  

Defined Contribution Pensions (DC) may include a protected retirement age, or an enhanced tax-free cash figure. Some other schemes may also offer guaranteed growth or annuity rates, which would likely be lost on transfer to another provider.  

The Costs Involved  

As part of Tideway’s analysis, we would look at if there are any added costs involved in transferring pension arrangements. It is important to check; if there are any exit penalties by transferring your pension away from one provider, if the arrangement charges you to sell your assets or if the receiving provider charges for incoming transfers.  

We at Tideway, do not generally charge any initial fees in relation to this advice as it is part of our service offering, however other financial advisers may charge you for this advice so please make sure you look out for this.  

The Value of the pension  

Some pension schemes may offer you to chance to take a lump sum payment if a pension fund is under £10,000. Whilst you will pay income tax on 75% of this value, you may be able to avoid using your lump sum allowance (LSA) in taking the pot as a lump sum under the “small pot” rules. This would therefore negate the idea of transferring the pension. Pension legislation can be changed by a future government so we would encourage you to take financial advice if you are unsure of the impacts.

Conclusion

Although a pension contract in itself can be quite simple, each pension product is different and can be quite complex, therefore it is essential to seek financial advice so you know whether consolidation might be appropriate for you.

If this is of interest to you, please contact one of our Tideway Wealth Managers who would be more than happy to help. As part of our analysis, we would liaise with your current pension providers in order to fully understand your position and then be able to provide you with a personal recommendation based on the factors stated above. If we did recommend you consolidate, we would also assist with the completion of pension paperwork so you don’t have to.

If like many others, you struggle to keep track of multiple pots with various different providers, consolidating the pensions together might be appropriate for you. You only have one retirement, so it is important to plan properly and avoid what could be a costly mistake!

To learn more about pension consolidation and decide if this option is right for you

  • The content of this document is for information purposes only and should not be construed as financial advice.
  • Any rates of return used are for illustrative purposes only. Please be aware that the value of investments, and the income you may receive from them, cannot be guaranteed and may fall as well as rise.
  • Any rates of tax referred to are correct as at the date of this document and may be subject to change in the future.
  • We always recommend that you seek professional regulated financial advice before investing.