I don’t think a week goes by without being asked “Should I Transfer My Pension?”

It’s a great question and in truth, the answer depends very much on your personal financial situation.

In this article, I share with you the many factors you should consider before you transfer or consolidate your pensions to one pension scheme or pension provider.

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One thing retirement is not these days is an age, not anymore anyway.

Gone are the days of being told to stop working one day and pick up your pension the next.  Today you have pension freedoms to decide when and how you retire.

By the time we have been working for a decade or two, it’s not uncommon for us to have accumulated pension funds with many different pension schemes.

There is no wrong time to start thinking about pension consolidation, but you might find yourself thinking about it if you are starting a new job or nearing retirement.

Consolidating your pension means bringing them together into a new plan so you can manage your retirement savings in one place. It can be a complex decision to work out whether you would be better or worse off combining your pensions. But by making the most of your pensions now this could have a significant impact on your retirement.

Types of Pension

There are two types of pension:

  • Defined Contribution Pension – also known as a DC Scheme / DC Pensions

  • Defined Benefit Pension Scheme – also known as DB Pension Schemes, or a Final Salary Pension Scheme

DC pensions, which are the most common type, are where you build up a pot of money over your working life, contributions come from you and possibly your employer providing you with an income in retirement.

They’re also called money purchase schemes, and often they are workplace pensions and/or personal pensions.

Final Salary or defined benefit pensions are company pensions that pay you a set income based on how long you work for the business and how much you earn. They provide a valuable guaranteed income for life, but are less common these days. But if you have one, then they can be worth their weight in gold.

There are many things to consider when looking to consolidate your pensions, such as:

  • the type of pensions you hold

  • your existing pensions may have valuable guarantees that you could lose if you transfer it out to the scheme

  • your current pension may have higher or lower product charges, and they may also be charges to transfer your pension to a new company or scheme

  • existing death benefits; would any changes affect these negatively?

Some alternative pension options may offer you the potential for better investment returns than your existing schemes, giving you the opportunity to boost savings in retirement without saving any more.

In addition some people might benefit for moving their money to a new pension that offer funds with less risk, which may not have been available for you before. This could be very important as someone moves towards retirement, when they might not want to take as much risk with the pension savings they’ve accumlated throughout their working life.

It’s quite common to de-risk as you come closer to retirement age to safeguard those valuable benefits you’ve built up.

If you have multiple pension pots, it can be difficult to keep track of them and the combined charges you are paying to your existing pension providers.

So by consolidating pensions into a new plan, lower charges could be available, however, it’s important to fully understand the charges an existing plan have before considering transferring that plan or consolidating with other pensions that you may have.

Consolidated pensions into one pot also reduces the paperwork and makes it much easier to estimate the income someone can expect to receive in retirement. However, before the decision is made to consolidate pensions, it is essential to make sure that there is no loss of benefits attributable to an existing pension scheme.

I’ll often see people doing transfers themselves, only to find out that they had some valuable benefits in the schemes that they transferred out of, which they’ve now lost. So be careful when you do these things.

It’s important that you review your pension situation on a regular basis.

If appropriate to your particular situation, and only after receiving professional regulated financial advice, pension consolidation could enable existing policies to be brought together in one place, ensuring they are managed correctly in line with your wider objectives. And don’t forget your pension can and should work for you to provide a better quality of life when you eventually retire.

Looked after correctly, it can enable you to do more in retirement or even start your retirement early, and in some cases enable you to pass monies on to your family.

Let’s look again at the defined contribution type schemes.

So for defined contribution, pensions or money purchase schemes, most will allow you to transfer and consolidate your pot to another pension scheme. Whether that’s your new employer scheme or a personal pension, you can check with your provider to see if there is any reason why you can’t switch.

What about defined benefit schemes or final salary schemes?

The financial conduct authority or FCA say that people should begin by assuming that staying in the defined benefit or final salary scheme is the best option for them. But in some situations, or there are exceptions such as where people are in serious health or financial difficulties, then there may be an advantage to transfer into a defined contribution or money purchase scheme.

The UK government insist you take professional financial advice from a regulated financial adviser who is authorized and qualified to give you such advice if you are thinking of doing this and the value of the pension benefits are worth more than £30,000. I give my clients this type of advice.

Before you consider making any decision to consolidate your pensions, you should check if combining your pensions will mean you lose any valuable features, protections, or guarantees that you may have in your other pension plans.  This is such an important fact I see it being missed all the time.

Check the charges and your plans to see if you will be paying more or less in charges as a result, whether you stay or whether or not you transfer. The value of your pension pot after consolidating can still fall as well as rise and isn’t guaranteed.

At the end of the day, the money is invested in the stock market when you transfer to a money purchase or a defined contribution scheme.

It’s important for you to understand the level of risk that you are comfortable in taking if you are going to transfer. And it’s also checking what level of risk you’ve got either existing schemes.

The final value of your pot when you come to take benefits could be less than has been paid in. Any new investments funds into which you move your pension pots will have their own set of risks that will be detailed in the funds information for you.

Consolidating pensions can remove the hassle and paperwork of managing lots of different plans as well as cutting charges and giving you access to a wider range of investments, and also online access, which a lot of my clients like to have.

However, if you are not sure if consolidating your pension pot is right for you and many people won’t be, then you should always obtain professional advice from a regulated pension adviser such as myself.

And for those of you who would like it, I have created a pre-retirement checklist, which is free for you to download, just click the image or Click Here.

Pre-Retirement Checklist Small Cover

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To have a chat with an independent financial adviser about a pension transfer, contact Tony Thomas on 07585 592494, email tony@ttwealth.co.uk or book a discovery call by clicking the button below.