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.