Should I Transfer & Consolidate My Pension?
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham.
Generally speaking, our Grantham-based financial advisers here at Castlegate tend to speak with clients about pension transfers for three main reasons.
First of all, it might be that your personal or workplace pension scheme is closing and so you need a viable alternative to move your money to. Another scenario might be that you’ve found a different scheme which offers better benefits than your existing one (e.g. cheaper fees), and so are deliberating whether it is worth transferring over.
Finally, it might be that you have accumulated a range of pensions in various places, throughout a long and successful career. Many people in this situation consult a financial adviser about whether it would be financially-prudent (and easier to manage) to bring it all together into one main pension pot, such as a Self-Invested Personal Pension (SIPP).
The question of whether or not you should transfer your pension is, of course, a highly personal one with important implications for your retirement lifestyle and estate plan (i.e. inheritance). Here at Castlegate, we offer this short guide on UK pension transfers to help inform your thinking as you consult an independent financial adviser. If you would like to speak to us about any of these topics regarding your own situation, please do get in touch to arrange a consultation with a member of our team at our expense:
Check your pension type
If you find yourself in the second scenario depicted above (i.e. you’ve found another scheme which possibly has better benefits), then it’s important to consider the types of pension schemes involved. In 2020, most people in the UK will be in a defined contribution workplace pension, but some will have a final salary (or defined benefit) pension such as the pre-2015 NHS Pension Scheme, which is widely regarded as quite generous.
It’s important to check your final salary scheme as some employers will not allow you to transfer. For instance, at the time of writing this is the case for unfunded public service defined benefit schemes, which applies to about 5m civil servants, police and fire service workers. However, if you are able to transfer to a defined contribution scheme, it’s important to seek professional financial advice. Moving out of a final salary pension is an irreversible decision, and in most cases involves losing access to some very attractive guaranteed benefits which are hard to replicate.
Certain defined contribution pension schemes might also have stringent or prohibitive measures in place, which makes it difficult or impossible to move to a better scheme. Some schemes, for instance, impose an exit charge on the value of your pension savings, if you want to transfer. It can still be worth transferring in some cases, as the benefits you will access will plausibly eventually exceed the cost of exiting your scheme. Others will do better financially to simply stay put. Again, an experienced financial adviser can help you find the information you need to determine your best options.
Consolidating a pension
For those in the third scenario described in our introduction, there are also a range of issues to consider when thinking about consolidating your pensions. First of all, over the course of your career you might have accumulated as many as ten or more pensions, each with different rules and benefits. Tracking them all down can sometimes be difficult, particularly if your previous employer no longer exists or you built up a pension many years ago. A good financial adviser can help you determine their location and contact the different scheme administrators, to start the process of consolidation.
This is a healthy exercise regardless of whether or not you eventually decide to combine your pension pots. After all, this is an important decision which could have a big impact on your retirement date and lifestyle. There are pros and cons to switching your pensions, as well as to leaving them as they are.
First of all, it might be that one of your pensions in a final salary pension. In most cases, it is likely to be best to retain these schemes rather than transfer out of them. Your other schemes, however, will likely be defined contribution schemes which involve varying degrees of investment performance and fees. For these pensions, it might be worth consolidating some or even all of them, depending on the nature of each scheme, your goals and circumstances.
For instance, suppose one or more of your schemes have been levying a 2% annual charge to manage your investments. This would widely be regarded as quite expensive, and would likely eat into your investment returns over the years. Transferring to another scheme with a lower fee structure (e.g. 1%) could make a huge difference to the eventual size of your pension pot. Other schemes might be poorly-structured, or not demonstrate the investment return potential which you might achieve elsewhere. Again, moving to a better scheme could boost your returns.
Of course, combining your pensions also tends to make managing them far easier. You no longer have to oversee up to ten pensions, but just one. This can bring a lot of peace of mind and clarity to your finances. Feeling in control of your wealth is an important part of personal wellbeing, and should not be overlooked in your potential decision to consolidate.
If you are interested in discussing your own financial plan or retirement strategy with us, please get in touch to arrange a no-commitment initial financial consultation at our expense: