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    Category: Retirement

    Should I consolidate my pensions?

    Combining your pensions can not only be a great way to reduce charges, but it can also help you to keep track of your pension savings.

    Choosing whether to consolidate your pensions isn’t an easy decision, so we’ve asked Suzanne Shepherd, Chartered Financial Planner, to share her thoughts, the pro and cons and whether combining would be the right thing for you.

    Let’s pass over to Suzanne…

    Gone are the days when people remained with the same employer for life, and many of us find ourselves holding multiple pension pots, with different providers. It can be hard to keep track of it all and understand the options available to you.

    What is pension consolidation?

    Pension consolidation is where you either bring all or some of your pension pots together, and combine them into one manageable pot.

    Throughout your employed life, it’s highly likely that you’ll accumulate many of these pension pots as you move to various companies. Each new employer, by law, is obligated to provide you with a workplace pension plan, and pay a percentage into it, on your behalf.

    If you are self-employed, or were for a period of your working life, you may have created a personal pension plan too. This can add complexity to the amount of pension pots you may have, as well as the difficulty of keeping them all together.

    Positives of consolidating your pension

    The main benefit of consolidating your pensions is that it makes your life easier. Having just one pension plan makes it simple and convenient to keep on top of, and you can easily check if you’re on track for any retirement plans you may have.

    You might not be aware but every pension plan has their own set of charges. It’s worth checking with each pension provider what their charges are to gain a better understanding, but you may find that you can save money by only having one set of pension pot fees.

    There may be the opportunity to be flexible with your pension if you have a more modern plan. You may be offered flexible withdrawals of your pot, or there could be the possibility to grant access to an income for your loved ones when you pass away.

    And of course, there will be less paperwork by only having one pension pot-every time. For example, every time you move address, you’ll need to let all of your pension providers know, so if having to go through numerous documents doesn’t appeal, consolidating your pensions might be for you!

    Negatives of consolidating your pension

    It’s possible that there are some tax advantages of keeping pensions pots separate, which you won’t be eligible for if you choose to consolidate them. You’re able to have three separate pots of up to £10,000, which are deemed “insignificant,” and therefore don’t go against your lifetime allowance, or impose a cut in your annual allowance.

    There may be some features or benefits of your current pension providers which are attractive, such as gaining early access to your pension or 25% tax free cash. If you were to transfer your pension savings to a different scheme, you could lose out on these kinds of special guarantees.

    Exiting any current schemes you have in place already could incur fees, and you could end up paying penalties. Switching your money around can have an effect on the size of your pot, so it’s best to have a financial advisor check this for you, as they will be able to find out if any penalties acquired can be removed.

    Can the government help?

    The government has a pension tracing service that can help people find contact details for pensions that they may have lost track of from previous employers– moving house, changing names, etc can all compound the issue of losing track of multiple pensions.

    I would recommend that if you’re looking to embark on a consolidation exercise, start by thinking if you could have any older pensions which you have lost track of. You could be worth a substantial sum – what a nice surprise to find out you have more held in pensions than you thought! The pension tracing service may be a good place to start!

    Some pensions, especially older ones, can have valuable benefits attached to them such as guaranteed annuity rates, protected tax free cash or terminal bonuses which could be lost when you transfer them. It’s always best to seek advice from a qualified professional, like us!

    Is pension consolidation for me?

    Consolidating your pensions does give you more control over your investments. Merging your pots could result in a higher pension income, meaning a more comfortable retirement. But you may have been offered benefits with your current pension schemes which you would lose should you choose to transfer, being a justified reason to not consolidate.

    We’re here to help

    We hope outlining some of the benefits and perhaps disadvantages of consolidating your pensions has helped you to make a decision. But if you’re still looking for advice, our team of advisers is here to help you make the right choice. To speak to one of our specialist team, please call 01782 345100.

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