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Is consolidating your pensions a good idea?

Is consolidating your pensions a good idea?

Is consolidating your pensions a good idea?

Man and woman discussing estate planning

Pension Consolidation: What is it?

We’re all used to changing jobs these days, but with that comes a trail of pensions from various providers – from that tiny one when you could only stand the job six months through to the large one from the job you stayed at for 10+ years.

Pension consolidation is simply a way you can keep track of your money by putting it in one pot and clearly managing it for the best growth possible.

The benefits of doing it

There are a few reasons you might decide to put everything in one place including things like:

  • It’s easier to keep track and manage your pension savings and see if they’re doing well and then take steps to help them perform better if not
  • If some of your pensions are higher cost schemes it might be better to transfer them to a lower cost scheme
  • Merging your pension pots might open a wider choice of investments if you’re looking for one flexible solution

But there are some drawbacks too:

  • If your pension is a defined benefit pension, it might not be the best idea to transfer out as the guaranteed income takes away any investment risk
  • If your pension has a guaranteed annuity rate it’s important to think about the implications carefully before transferring out and weigh up the advantages and disadvantages carefully
  • It’s also important to see whether any of your pension providers will charge you for transferring money out of the scheme

A fictional example.

Here’s an example of a fictional client pension consolidation.

David has worked for an accountant for a few years and work is dominant in his life.

He’s 55, hasn’t taken any advice on his pensions and has left them where the employer put them. This means he has several pension pots of various sizes all over the place.

He wants to understand his financial position better and find out whether he can afford to retire.

His four pension pots are:

  1. An old company pension plan with provider A with a fund and transfer value of £45,000
  2. A pension plan with provider B with a fund and transfer value of £40,000
  3. Personal pension plan with provider C, which David is currently paying and has a fund value of £35,000
  4. Current company pension with provider D, which David is currently paying into and has a fund value of £20,000

Taking David through the PlanHappy process, we discussed what retirement looks like for him including the costs associated with any retirement hobbies, holidays, or events he has planned, and the assets needed to fund them.

Following this, the team got busy working on getting all the information from his pension providers before the paraplanners calculated this into several options for David to choose from – taking into account the lifestyle goals he wants.

This was then mapped into a plan giving David his desired goals and how his assets can fund it. We were able to present David with a positive plan that allowed him to retire immediately and do all the lifestyle desirables he wanted.

David was astounded he could afford to retire straight away and decided to consolidate his pensions into drawdown and retire immediately.

The benefits of David doing things this way was:

  • He got a plan that showed him exactly how much he needed to fund the retirement he wanted and how his assets can fund it
  • He benefited from our clear, simple process that not only gives the information needed but does so in a jargon-free way – allowing him to make informed decisions
  • He got the satisfaction of knowing he can afford to retire now and do the things he wants to
  • He got peace of mind that everything’s being taken care of by professionals

Things to Consider

It’s not always best to consolidate your pensions, as some come with additional benefits that are lost on transfer, so you may find it’s better to remain in an existing pension scheme.

Ultimately, it’s important to get professional independent advice before making any final decisions and make sure you understand all the implications of any decision.

As pension and retirement specialists, we are trusted by many hard-working people across the UK. Plus, as a company authorised and regulated by the Financial Conduct Authority and with the additional permissions to advise on defined benefit/final salary pension transfers, we are ideally positioned to help people get the retirement lifestyle they deserve.

Ready to talk?

Our friendly team are here to help, call 01642 525511 or click to arrange a call back from one of our experts to help you answer the question, how much do I need to retire?

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