Pensions Consolidation
When I began planning for retirement, I started by gathering information about the various pensions that I had accumulated over the years. I hadn't changed jobs that often (I had 5 jobs over my years employed) but I found I had a number of pensions - including two with one employer which had come about as they had changed the staff pension scheme half way through my employment. Most reading this will likely be in a similar situation. Each new job brings a new pension and leaves the old that will sit uncared for, but hopefully growing enough so that one day it can be used as part of your retirement.
This build up of potentially significant assets, if left uncared for could be an opportunity lost. Your pensions can be eroded by charges, fail to grow at the desired level, or worst still - forgotten about. So it's important to give them some attention and to take action to ensure they are there to give the benefit you're looking for from them.
In my case I chose to consolidate them into one big pension. This had a number of benefits, but most notably it simplified (you'll see this word a lot) what I needed to do as I would only have one pension to track & manage. There were also other benefits from consolidation
Reduced charges - all pensions have charges. At a minimum this will be a platform and fund charge, but some include fund manager and advice charges (whether you get advice or not 🤦). In almost all cases these charges are tiered - so you pay more on smaller amounts and less on larger amounts (ie 0.5% on the first 50k, then 0.25% on the next £100k then 0.1% on anything over £100k). So if you had say 3 individual pensions of say £50k each then each could be being charged at the highest level. If you consolidate them into one pension, then the costs will most likely be lowered)
Simplified fund selection - I will say upfront that selecting the funds I was invested in was something I never really got to grips with (this is a while other post 😁). Suffice to say that every pension had its own choices on the funds the pension was invested in - so that didn't help with choosing funds and it made it complicated. By consolidating it was less complicated as there would only be one set of funds choices to make.
Simplified drawdown and tax free cash tracking - when you do come to access your pension(s), having fewer rather than more makes the whole drawdown and tax free cash tracking much easier. If you have multiple pots you have to track how much of your overall free cash allowance you have used along with any other pension limits.
Simplified income tax - like with employment, your income from your pensions is taxable. If you drawn down enough to pay tax, ideally your pension will be taxed on a PAYE basis, so your pension company will know your tax code and tax comes out of each drawdown you make. However if you have multiple pots being drawn down on this becomes very complicated as each will not know how much you've taken from others so you could end up paying too little or too much tax. This could result in the need to do a tax return and a tax bill at the end of the year.
My pensions where a mix of Defined Benefit and Defined Contribution pensions, each had their own benefits, investment options, charges, retirement options - the list goes on. As such I chose to take advice about consolidation - however if your pensions are straightforward then you may not need advice.
To begin your thinking on consolidation of your pensions, start by looking at the following items for each pensions you have. This will help you understand if one of the pensions might be the best place to be the choice for consolidating all others too.
- What are the current tiered charges for each pension
- What has the growth been after all charges
- Does the pension allow transfers in
- Are there any costs associated for transfers in or out
- Does the pension have any special benefits (ie Life insurance, spouse pension etc)
This will give you a starting position to know if one or more of your pensions might benefit from consolidation. Some will likely come out as candidates for consolidation and hopefully one will stand out as the best place to consolidate too. If one doesn't come out as the best place for consolidation then you'll need to do some investigation to choose the best platform, however I would recommend considering getting Advice as there is a huge selection of platforms and products out there and you could easily jump out if the frying pan into the fire. Advice doesn't have to be expensive and can be a one-off activity.
As I said, in my case I chose to take advice and my Adviser did all of the work to consolidate and they consolidated all of my pensions consolidated into one of my existing pensions. If you don't take advice and instead choose your own target for consolidation, then it's well worth discussing this with your chosen provider as many are willing to help with the process as they are in effect growing their business.
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