How to consolidate your pensions

A common question asked during my daily appointments with clients is “How can I consolidate my numerous pensions ?“

Mainly to simplify the administration of looking after them or trying to save paying fees across numerous different pension providers.

So the idea of bringing all your pension funds together to make one big pot could make saving for your retirement a lot more manageable and easier to control. It could be that you have changes jobs at numerous times and are automatically enrolled into a new DC pension. Or your employer could do a beauty parade and change pension providers every few years to save on costs. Before you know it you could have 3 or 4 different pensions with different pension providers.

So what are the advantages of consolidating ?

Ease of management and reduced administration on your part.

Management of your retirement savings is going to be a whole lot easier. You will have one provider, one set of contacts and hopefully one simple investment fund to monitor.

Better performance and investment returns ?

Some funds you have may not be performing well year on year. They may perform well in year 1 but poorly in year 2. So you could be neglecting them over the longer period. By not moving them to one fund may, you could be losing a better return on your money invested.

Bear in mind that all funds may come with a number of specific benefits and unique terms. So it is always advised you take the advice of a regulated financial adviser before moving your savings around if your are concerned.

You may end up paying less in fees ?

Also don’t forget that each of your pensions will have a set of fees, so it follows that the less funds you have, the less fees you are likely to have to pay.

You may even have numerous pots with the same provider, each paying a set of fees.

With regard to simple Auto enrolement schemes now in place or stakeholder plans through an employer. The charges of these types of pensions are usually capped to a limit, being:

• 1.5% a year of the value of your pension pot in the first ten years,
• then 1% a year (but if an employer is using a stakeholder pension to meet their automatic enrolment duties there will be a charge cap of 0.75%)

Hopefully, no lost pension funds in the future ?

By keeping a track of your pension(s) throughout your career, you are less likely to lose the odd pension which may occur when you move jobs. Consolidating all of your funds together makes that likelihood even less.

It amazes me the number of clients that I speak to you, that have missing pensions and have no record of which pension provider they are with.

Or the 2nd scenario, they have forgotten about a pension they had many years ago. Possibly from their 1st job many years ago. Or they may have been contracted out in the late 80’s and early 90’s and they are unaware they have a pension plan at all. It’s only when a provider writes to them at set age to possibly access, that they realise they have another pension product.

Some clients even think it’s a SCAM, but it does happen on a regular basis. As people move house, remarry or get divorced, and don’t update their personal details with a pension provider.

If you think you have any missing pensions you can track them down by using a free and impartial government service called http://www.gov.uk/find-pension-contact-details

Could you access your pension more easily, at point of accessing ?

If you do consolidate, it is likely you will be creating a fund with certain terms and conditions. That means they will necessarily reflect changes made in 2015 (Pension Freedoms Act). This Act allowed UK citizens to access their pensions from the age of 55. Unless. you have ill-health or protected age when it could be accessed earlier. This is known as the minimum pension age and will increase to age 57 from April 2028.

Although you can complete a transfer at any age, even if below the age of 55.

However, not all funds, even modern ones allow for access, so be sure to check this out before making changes for this reason. Also check do any of your schemes have any special features or benefits such as Guaranteed Annuity rates (GAR’s). Or are they in a w/profits policy which will pay a bonus each year until maturity then will apply a terminal bonus on maturity. These benefits mainly relates to older schemes but these benefits may be worth keeping hold of.

There can be clear reasons why it is not a good idea to consolidate numerous pots.

Are there any disadvantages to consolidating your pensions together ?

Your investments could be performing well in a respective scheme.

This may sound obvious but if your funds are working well – why consider moving them elsewhere? You may be doing yourself no favours by moving a pension fund which has great benefits, is continuously showing strong returns, and overall growing at an acceptable rate. Most people have no idea where their investments are held as they are usually out into a workplace default scheme, or in the later years some kind of lifestyling fund.

You may not want all your eggs or investments in 1 basket !

Although your pensions are fully protected and are usually written in trust by your provider. Some people may not want to have all their pensions held with the same provider. It may be worthwhile for some people to have investments across 2 pension providers. You may do this to eliminate some kind of risk and to diversify your investments.

A provider may not offer you all options available through Pensions Freedom !

If you have any old pots that may have so called special feature for benefits, it could be worthwhile and beneficial to leave them in the current format.

• Your provider may offer more than 25% tax free lump-sum
• You may be offered a GAR if you buy an annuity with existing provider
• It could be held in w/profits policy, so you receive an annual bonus and then a terminal bonus upon date of maturity.

Or it could be if you have an old policy they only offer old products such as an annuity or cashing in the complete pot. The landscape has now changed and you have several flexible options such as drawdown (FAD) or a number of lump sums (UFPLS). Thanks to the introduction of Pensions Freedom back in 2015.

Are you happy investing your money into a new pension plan, when you do transfer !

Pensions plans will offer the member many different investment options. Some offer a small number of investment options, while others offer a large number. And some will offer more specialist investment options, such as the option to invest directly in shares or property.

Think about whether you need more investment choice or if you’d be looking for some support with choosing investments. Are you prepared to pick your own funds and investments, or do you let the provider invest directly on your behalf. Such as a simple default fund.

Having lots of investment choice can be great, but it can also make the product more expensive and more difficult to make those choices. It may appear daunting to most people as we don’t people how to invest money. The vast majority of people will see a headline figure with regard to the pot valuation, but they have no idea where the funds are held or invested.

If you’re in a workplace or stakeholder pension, it will have to offer one or a number of investments funds your money will be invested in if you’re not comfortable making a choice for yourself.

If you’re looking to set up a new pension yourself. It may be worthwhile to do some due diligence so see if they offer any ready-made options or support with narrowing down your choices.

What about transferring a Defined benefits pension scheme ?

For instance, if a fund promises a guaranteed income (such as a final salary pension ) on retirement, it is probably worth holding onto.

The income given at normal retirement date (NRD) is guaranteed by the sponsoring employer and is usually based on 3 things, salary, accrual rate and length of service. So the longer you worked for that employer and the better your salary the greater amount of pension will be payable.

Some employer pension schemes may come with the benefit of being able to withdraw more than 25% tax-free cash (PCLS). Some companies may include some built-in insurance cover, normally up to a number of times your annual salary.

So before you do transfer out a DB pension, make sure you understand all the benefits of your pension plan before messing around with it.

I believe I need regulated financial advice to do a DB transfer ?

If you do decide to transfer out, your DB provider will give you a cash equalivant transfer amount (CETV). Which is normally valid for 90 days, if it runs out. You can request another one but it could be higher or lower, and a provider may charge you an admin fee if you request another within 12 month timeframe. So check with your current DB admin team about the conditions of asking for a CETV.

If you pot has a CETV over £ 30,000, it is legal requirement that you attain regulated Financial advice. The trustees will require proof that you have received such advice and complied with the rules stated by the board of trustees to complete transfer out. You could struggle with finding an IFA to do the transfer, and you may not agree with their decision to either accept or reject your transfer request.

If you have a final salary pension with your employer (defined benefit pension) then the benefits are very good. They are considered the gold plated standard with regard to pensions. As the risk is met by the sponsoring employer, whereas with DC pensions the risk is borne by the member. As well as a guaranteed income when you retire and inflation protection, you can also organise payment to be made to your spouse if you die after reaching the accepted pension age. As mos schemes will offer a spouse’s pension equal to 50% of the members benefits on offer.

Again, consider how much you are likely to lose. These pension plans are usually worth holding onto.

Is there an exit fee ?

With the current economic problems in the UK everyone is looking to switch to the most beneficial scheme or plan with any product or service. To deter this behaviour, many companies write huge exit fees into their plans. In other words, leaving the fund may negate all the benefits you will gain from moving your savings elsewhere.

So check what it will cost to transfer your savings. This could apply to w/profits policy where a market value reduction (MVR) will be applied so your actions won’t be to the detriment of the remaining investors in that fund.

If any exit fees are applicable, your provider should normally provide details of any fees and charges applicable. So you don’t get an unpleasant surprise and you will act accordingly.

You should also the timeframe to complete a pension transfer, a DC pot is considered relatively simple and can be done in a few weeks. Whereas a DB pension could take a few months to complete and could it be completed within the required 90 days timeframe. It could be extended through the discretion of the trustees in agreement with the regulated IFA doing the transfer out.

What about small pots pensions !

If you have small pension pots worth less than £10,000, it might be worthwhile to review that pension in particular. Is that pot making money or losing money through the investments held. Is it being eaten away by fees and charges, if it is continually losing money. Could the pot disappear in value completely. ,

Or could you cash the pot in under the small pots rule. This is where the pot is below £ 10,000 in total value. Whereby you could cash the pot in 1 go and act under the small pots lump sum rule. It doesn’t trigger the MPAA and will not affect the level of any future pension contributions.

You can usually do this up to three times with personal pensions and for an unlimited number of workplace/occupational pensions.

If you cash in a pot worth more than £ 10,000 you will trigger the MPAA and your future contributions are then restricted to only receive tax relief on contributions to your pension pots up to £10,000 a year.

Also if you cash in below £ 10,000 it should be taxed at basic rate of 20%, if over £ 10K, your provider will normally apply emergency tax possibly 40% or 45%. Do they rebalance on your behalf at the end of the tax year, or you do reclaim via gov.uk in a quicker timeframe.

So how do I complete the process of transferring a pension ?

Your initial step is to get your paperwork on order and check out the latest pot size valuation. You will normally receive a statement in paper form or via online account or app. If you can’t get the figures then contact your provider directly to attain up today figures.

Your scheme administrator or pension provider will then give you:

• a document that sets out your transfer value
• details of any extra benefits you’ve built up under the scheme, selected retirement date,
• details of any exit charges that might apply
• information that your new scheme will need if you decide to go ahead with the transfer.

You might need to complete some fill forms to start the transfer process.

Be aware that the transfer value usually changes as the value of the investments held in your pension will change regularly.

To start the transfer process, you’ll need to apply to the pension scheme that you want to transfer to. Some providers have an online transfer process, while others might still need you to complete and return an application form. You can do it 2 ways you can speak to old provider transferring out from, or you can ket your current provider initiate the transfer process.

When you’ve submitted the application to the provider, they’ll usually contact your existing pension provider or scheme administrator to arrange the transfer.

In some cases, your existing provider or scheme administrator might need you to send forms to them too. So it can help to check with them what they might need before you begin the transfer.

If you decide to transfer to a new pension scheme, your scheme administrator or pension provider must move your pension across to the new scheme within six months from the start of the transfer process, assuming all the necessary steps have been taken and the documentation is in place. But most DC pension transfers are a relatively simple process and will be completed within a few short weeks, at present accordingly to the FCA, it takes 16 days to complete a pension transfer from start to finish.

When you’ve transferred to a new pension scheme, normally you’ll have given up everything under the old scheme. You will extinguish all rights held under the existing scheme rules, and you only be allowed to transfer the full pot. Most providers may be reluctant to let you transfer some of the pot, they will want a clean break. So check the terms and conditions with your existing pension provider. Some schemes will not let you transfer only a part of your pension.

If you get financial advice, your adviser will usually take care of all this for you but you still might have to fill in some forms. But if you do use an IFA, the process will obviously take longer to complete due to the extra compliance and due diligence tests undertaken.

Finally – be wary of pension scams

Your pension might be one of your most valuable assets. And for many people, it offers financial security throughout retirement and for the rest of their lives. It is probably your biggest asset after your main residence.

Unfortunately, like anything valuable, your pension can become the target for illegal activities, scams or unsuitable and high-risk investments. So look after it !

Pension scams can take many forms and usually look like a legitimate investment opportunity. But pension scammers are clever and know all the tricks to get you to hand over your savings.

They target anyone, pressuring you into transferring your pension savings, often into a single investment.

If someone contacts you unexpectedly and says they can help you access your pot before the age of 55, it’s likely to be a pension scam. You could lose all your money and face a tax charge of up to 55% of the amount taken out or transferred, plus further charges from your provider.

These so-called investments might be overseas, where you have no consumer protection. And they might promise you a high unexpected or so-called guaranteed rate of return. It may be false investments in luxury properties, hotel developments, cryptocurrencies etc, which often don’t exist or are very high-risk with low returns. 

If it sounds too good to be true – it normally is.

Don’t feel under pressure to transfer a pension, no matter how good the offer or product may be. If unsure take a step back and speak to immediate family, or seek independent advice.

Once you’ve transferred your pension into a scam, it’s often too late.

The government has now banned cold calling about pensions. It’s important to ignore anybody who approaches you out of the blue about your pension entitlements or pension matters. It’s most likely to be a scam. If concerned you can report a scammer to the https://ico.org.uk (the Information Commissioner’s Office) a trade body for data protection and information rights.

Remember !

If you found this blog post useful and informative, check out my other posts on https://moneyminted.co.uk which covers pensions, savings investing and recommended investing. So you can improve your financial or investment knowledge and ultimately reach your investing and financial aims and goals.

It’s not a get rich quick journey, but you will get there in the end if you create an action plan and think long term.