As you approach retirement one of the biggest jobs you will probably need to consider is whether you should be consolidating your pensions.
There are some great benefits to consolidating your pensions but also a few things you need to check before you do.
Why consolidating your pensions can really help your retirement
You might look at all your individual pensions and think in isolation they might not be enough to retire. But when consolidating your pensions, lots of smaller pension values can add up to a big value and then your retirement options could completely change.
Remember, you are in control of your pensions, you decide what you do with them.
Here are 6 benefits of consolidating your pensions.
- Easier to administer. Having lots of different pensions with different companies means receiving lots of different post/paperwork every year and having to contact multiple pension providers. This all takes time. Over the years many pension companies get bought out by larger companies and sometimes you can end up losing pensions. The Association of British Insurers estimate that 1.6 million pension pots, totaling £19.4 billion remain unclaimed.
- Easier for your family to deal with on your death. In the same way it is easier for you to deal with the administration of just one pension as opposed to multiple, the same can also be said on your death. Dying with multiple pensions can mean your family could find it difficult to understand what pensions you had and where to locate them. Consolidating your pensions also means you only have to complete one death benefit nomination form rather than trying to remember to complete them for lots of different pensions.
- Lower costs. Older style pensions can quite often have old fashioned charging models which ultimately have higher costs. By consolidating your pensions you can use scale to reduce your overall charges. Today, most pension and investment platforms charge you less the more you invest.
- Wider range of investment options. Older style pensions usually have limitations on where your pension money can be invested. You usually only have the option of using the pension provider’s own investment funds. By consolidating your pensions you can access the whole of the market ensuring you have the best investment strategy for your retirement plans.
- Access to pension flexibility. If you plan to be taking some money out of your pension in the near future but not all of it then your older style pensions are unlikely to have the functionality to do this. If you have never transferred your pensions before then it is likely the pensions you have are built for saving, not withdrawing. In order to get the full benefits of flexi-access drawdown (if appropriate for you) then you will need to transfer your funds to a pension that allows this feature.
What to check before consolidating your pensions
Hopefully by now you can see there is a strong case for consolidating your pensions however, it’s important to ensure you fully understand what type of pension you are giving up before you move it.
Make sure you check things like:
- Defined benefit pensions. These types of pensions work very differently to defined contribution pensions that have a pension pot value. Typically it is not usually appropriate to transfer defined benefit pensions. At least not without taking professional advice.
- Guarantees and extra benefits. Some defined contribution pensions still offer some form of guaranteed income in retirement. Look out for things like ‘guaranteed minimum pension’ and guaranteed annuity rate’. Some older style schemes also offer the ability to take a higher tax free cash lump sum.
- Charges for transfer. Nowadays it’s less likely that your existing pension schemes will charge you a penalty for transferring but some still might. You need to be clear on what the charges are before you transfer so you can decide whether the benefits of the new pension outweigh the cost of the transfer.
The older the pension the more complex some of the rules and features can be. If you need assistance making sense of it all we are happy to help.
This will be your first retirement, but for us, we have done it hundreds of times. So please get in touch for a no obligation, free 15-minute conversation so we can help you understand where you stand and what you need to do next.
We are also currently offering a Free Financial Review (usual cost £1,500) for a limited time only.
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.