how simple is it to combine numerous UK pensions

The idea and process to simplify and combine numerous UK pensions – should be a relatively easy process to do yourself.

However, most people think it’s complex and cumbersome. As it is outside our comfort zone and level of financial knowledge.

But by taking some steps, it can be a straightforward process done in short timeframe.

You can do a transfer at any time you shouldn’t be restricted.

But you cannot access a pension until age 55 unless you have ill-health or protected age.

Be aware this will increase to age 57 with effect from 6th April 2028.

On average it takes around 10 to 11 days to complete.

Thanks to a simple automated service in place called “Origo” which is used by most DC pension providers in the UK. 

But a paper or manual transfer could range from a few weeks to a few months.

The workplace pension landscape has changed !

In the past may people had so called jobs for life. You worked for a large employer and they offered mainly DB pensions. (known as final salary).

In that on retirement you would receive a guaranteed pension based on accrual, length of service and salary. With the risk borne out by that sponsoring employer. 

It was only people that had set up private pensions elsewhere. Or may have opted out of SERPS in the 80’s & 90’s that had some kind of private pension arrangements.

Thanks to the introduction of Auto-enrolement back in 2012. The vast majority of people are now enrolled into a workplace Defined Contribution (DC) pension plan. 

But people no longer have jobs for life, they seem to move employers every few years. 

So before you know it, you may have amassed numerous pension plans across many different providers.

Before you do transfer or consolidate – ask the following questions !

• Will they let you ?

Should be no reason why not, but check that current provider accepts transfer in.

• are there any exit fees or charges ?

Most schemes now are relatively simple, but older schemes may apply transfer charges, exit fees or market value reduction (MVR) if w/profits

• how long will the transfer take to complete ?

It should be a simple process, but get it confirmed so you don’t get any surprises.

Do provider A transfer out to Provider B, or does current provider B do it on your behalf from older pot.

• do you lose any special features ?

Many older pensions make have special features of legacy benefits. Such as GAR (so a guaranteed rate or better level of income if you buy an annuity with them). 

Or could be w/profits – so an annual bonus is added to the policy each year. On maturity the pot value is increased by terminal bonus being added.

• What about enhanced tax free cash ?

At present you are normally allowed to take 25% tax free from each pension subject to limits. But certain old schemes may allow you to withdraw more than 25% tax free.

But we need to understand why people may want to transfer their workplace pensions ?

1. simplify administration
2. you lose track of them
3. save on fees and charges
4. they don’t offer certain product
5. better control over them

So lets look in greater detail:

1) Simplify your admin:

Are you able to manage numerous pensions plan across several different pension providers.

If you do join a workplace pension. It’s the employer that picks the pension provider which they offer to its staff.

Can you remember several log-in’s, passcodes, 2 factor authentication with each company.

If they don’t offer online account, portal or APP. Do you find yourself receiving war and peace each year upon receiving annual benefit statement.

Before you know it, you have mountains of unnecessary paperwork.

2) You lose track of them:

If you can manage your pots then great. But not everybody can. Some people are not great with paperwork.

People may not be able to create or activate online account, when initially joining a scheme or workplace. 

They may move house and not update personal address.

You may get married and don’t divulge new name or new address.

Pension providers change names and can merge with other providers.

A lack of awareness, some people don’t know which company offers them a workplace pension.

Is it believed that around £ 31 billion across 3.3 million is sitting in forgotten missing pension pots.

With the average being around £ 9.500 per pot.

The vast majority being people  under age 55, placed in AE pensions in recent years.

How to track down an old pension ?

Look through old workplace paperwork, such as payslips, employment contract, check your employment timeline. By doing so you build a picture of any pensions you may have.

Ask ex-workplace colleagues, or speak to HR department who should have relevant details and dates.

Use free tools such as Pension Tracing Service via the gov.uk. website being: https://www.gov.uk/find-pension-contact-details

I have on numerous occasions sat in front of clients. Which are in receipt of paperwork from old scheme and they have managed to find them out of the blue through NI records. They sometimes think it’s a SCAM.

But most time it’s from their 1st job in employment, or they opted into SERPS many years ago.

I would rather myself find them, to get a better idea of future pension provision. Instead of them finding me upon reaching a set date such as selected retirement date.

So make a decision today to find any missing pensions, no matter how small. You may get a pleasant surprise !

3) save on fees and charges 

On each pension you will be paying fees, charges called annual management charges.

These costs will be deducted automatically by your pension provider, probably each month through selling units held within the fund.

Recent schemes such as stakeholder schemes will have charges capped. But older schemes will have higher AMC charges. 

Also consider if you have a scheme held with an IFA. You will be paying fees to your pension provider and also your IFA to mange your pension. 

So do a simple review / comparison across your numerous pension costs and fees.

They will be listed in annual benefit statement as % amount of pot value or £ figure.

If you do combine can you reduce or save any fees payable. 

Suppose you have a small pot, is it being eroded by ongoing fees and charges.

Fees may not appear to be excessive, but it could add up across many years of investing.

Small differences in future years, could have a detrimental effect on future pot value.

4) They don’t offer certain products 

Before the introduction of Pensions Freedom in 2015. Your option upon accessing was to buy an annuity (so a guaranteed income for life)

Now you have several other options such as drawdown (FAD or series of lump sum (UFPLS).

But if you have an old scheme, it may not offer recent pension products.

Hence the reason why you may have to move elsewhere to another pension provider or an existing scheme you held. 

They may offer you annuity products, but you have to put the pot with another provider if you want to access it via the new flexible options.

5) better control over them

By consolidating and combining numerous pots, you can control them better. You may not want all your eggs in 1 basket, but you may simplify older pots together. 

But keep your current workplace or private pension separate as it is still active and you are still contributing to that scheme.

It may be that you access an older simplified pension at a set age for a particular reason.

Such as short term fix or accessing tax free cash only.

But you then access your current pension when you leave that pension plan.

Probably through leaving that employer for a new job, or at time of retirement.

Do I need a Financial Adviser to help me ? 

Ideally not, if just depends are you happy doing the transfer yourself. 

DC: Unless you have a pot over £ 30,00 which obtains special features, guarantees, there is no legal requirement, you can doit yourself.

DB: If the CETV (cash equivalent transfer value) over £ 30K. Then, yes certified and regulated advice is required to complete the transfer to new format.

It is a requirement for the trustees running that scheme as you are giving up a defined benefit or final salary. 

If below £ 30K then you can do it yourselves.

Hopefully the above points and key considerations has helped you. In deciding if you are going to consolidate and merge and older pensions.  

But take your time and don’t feel under any pressure. Simplify numerous pensions for a reason. 

Plus you put the plan in place. If anybody contacts you via text, email, website advert be wary.

It’s illegal in the UK to be contacted out of the blue since 2019. It may be a SCAM and you may even lose a pot and if under age 55, be hit with a tax charge currently 55%

I wouldn’t like you to lose a pension pot. But unfortunately, people believe other people. 

Watch out – scammers are out there.

Remember:

If you found this blog post useful and informative. Please feel free to check out my other posts on savings, investing, pensions and investment books I recommend on https://moneyminted.co.uk