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Retirement

What is Pension consolidation?

Written by Connor Mullins on Jun 7th, 2024 Time to read: 7 minutes

If your long-term investment goal is to retire comfortably, then you’ll be investing into a Pension, with the aim of growing a Pension pot that will fund a fulfilling retirement.

Throughout your career, you’ll likely have several jobs. As a result, you may end up with several Pension plans in the UK. This may mean that you’re paying multiple investment management charges and are without the most optimal investment.

Pension consolidation is the process of bringing together multiple Pension schemes. It is as straightforward as identifying what Pensions you have, and then transferring them into one Pension provider.

This means you can see your investment performance in one place, giving you a better idea of how you are progressing towards your retirement goal. Before you go ahead, contact your current Pension provider** as there may be fees involved for making the transfer.

Why consolidate your Pensions?

To grow your Pension pot.

Every Pension pot you have will be managed separately and unfortunately this likely means each one has its own annual management fees. By consolidating, you can save on these fees so more of your money can be invested towards retiring, which may help you to reach your retirement goals sooner. You should always check with the provider or a financial adviser before withdrawing.

Flexible access to your money.

As a result of Pension legislation changes in 2015, people now have greater control over how they can use their Pensions. Pension drawdown is usually only available to people aged 55 and over however,  and from 2028, the normal minimum Pension age will increase to 57**. With a drawdown Pension, you can withdraw up to 25% tax-free while the remainder of the pot will be invested.

This allows you to leave your pension invested while taking some of it as cash as and when you need it. You should always check with the provider or a financial adviser before withdrawing.

If you have a defined contribution pension, you can take up to 25% as a lump sum without paying tax once you turn 55 (rising to 57 in 2028). If you take out more than this you’ll have to pay income tax. Transferring your old pensions into a new plan will mean being able to take advantage of drawdown, giving you potentially greater control over your money.

To align with your preferences.

Consolidating your Pensions enables you to have a comprehensive view of your investments and Pensions in one place, as well as the chance to have better control over your investment strategy. This removes the need to manage multiple portfolios with different asset allocations, but also, allows you to create a unified investment plan that aligns with your retirement goals and risk tolerance. 

To make managing your Pension easier.

Managing one Pension pot is simpler than handling multiple accounts, as well as reducing fees, admin, paperwork and making it easier to track your overall retirement savings.

While it can be convenient to see your Pension performance and eventually manage withdrawals in one place, you’ll also avoid losing track of old Pensions.

It’s important to remember that past performance is not a guide to future performance.

Potential drawbacks of consolidating your Pensions.

Losing final salary Pension benefits.

Sometimes called a ‘Defined Benefit’ or ‘Occupational’ Pension, a Final Salary Pension pays you a set amount of money for the rest of your life once you retire. If your Pension is a defined contribution or money purchase scheme, this isn’t a final salary scheme, therefore there may be more value in transferring it. Ultimately, any decision around your Pension pot is a big one and speaking to a financial adviser could be beneficial to decide what course of action to take.

Losing guaranteed annuity rates.

As the name suggests, a guaranteed annuity rate is a pre-determined regular Pension income paid to you for life. It provides you with the security of knowing that your retirement income is guaranteed at a certain percentage of your accumulated fund. The rate itself is the factor that determines how much annual income you get.

You can lose your guaranteed annuity rate if you change to another type of Pension or a different annuity provider. If you are in a Pension scheme with benefits, it may be best to keep it separate rather than consolidating elsewhere.

Speak with a financial adviser to get professional expertise best suited to your circumstances, while you can also get free, impartial information about transferring your Pension from MoneyHelper**. You can contact them on 0800 011 3797.

Some Pensions can’t be combined.

Not all Pension types can or should be transferred. For example, rules came into effect on 6th April 2015 meaning the NHS doesn’t allow transfers into any scheme offering flexible benefits or defined contribution schemes. 

It may be possible to transfer to another defined benefit Pension**, however, most providers don’t accept transfers in from the NHS scheme.

Paying exit penalties.

The amount you may potentially pay in Pension transfer charges or exit penalties will vary from provider to provider and from scheme to scheme. It’s important to check these fees with your existing provider before you transfer.

How to consolidate your Pensions.

  1. Research your Pension providers.

Start by doing research into your different providers and think about what Pension best matches your retirement goal. Factors such as performance, cost, and the ability to manage your Pension are important. You may wish to discuss this decision with a financial adviser.

  1. Trace lost Pensions.

Once you’ve decided the provider, this is often as simple as contacting the provider and giving them the details of your other Pensions to transfer in. They’ll typically take it from there and it can be relatively straightforward. It is best to have all your information at hand to give to your Pension provider, and this may mean details such as Pension reference numbers and your National Insurance Number.

  1. Transfer old Pensions into your new one.

Be wary that some Pensions you are invested in may have exit fees and certain Pensions can provide valuable guarantees, such as guaranteed annuity rates, protected higher tax-free cash percentages and protected retirement ages. Some plans, often workplace schemes, also benefit from low charges that cannot be matched elsewhere. These guarantees and benefits could be lost if transferred and therefore Pension consolidation is not right for everyone.

How quickly your Pensions will consolidate really depends on circumstances such as how many Pensions you are consolidating and how long your Pension provider takes to administer the transfers.

If you do not know how many Pensions you currently have or would like all of your Pensions one place, our Pension Consolidation Service* can help you.

Transferring your Pensions to True Potential

Consolidating Pensions can be quick and easy, and this could be as straightforward as speaking with your financial adviser or contacting your Pension provider.

If you’re already an investor with True Potential Wealth Management and would like to consolidate your investments, speak to your financial adviser or call our Relationship Management Team on 0191 500 9164.

If you are a True Potential Investor client, call 0800 046 8007

They’re available 7am – 8pm weekdays and 8am – 12pm on Saturdays.

If you do not currently invest with True Potential and would like to find out how we can help you do more with your Pension, contact us today – we are happy to speak through the available options and help you do more with your money. Please call one of our experts on 0191 625 0350 to get started.

With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. This material is not a personal recommendation or financial advice and the investments referred to may not be suitable for all investors. Tax is subject to an individual’s personal circumstances. Tax rules and allowances can change at any time.

Pension eligibility and tax rules apply. This blog is not personal financial advice.

Before deciding if pension consolidation is right for you, you should consider all of your options. You should be aware that there may be exit fees on some pensions and there may be valuable guarantees that could be lost on transfer. For this reason you should list all of your pensions, and fully assess your circumstances. Speak to a financial adviser if you are uncertain of what the best course of action is.

 

Sources

True Potential

* All data indicated has been appropriately sourced from True Potential and accessed on 31/5/24

Other

** All data indicated has been appropriately sourced from MoneyHelper and accessed on 31/5/24

All data indicated has been appropriately sourced from gov.uk and accessed on 31/5/24

All data indicated has been appropriately sourced from gov.uk and accessed on 31/5/24

All data indicated has been appropriately sourced from Online Money Advisor and accessed on 31/5/24

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