Is Pension Consolidation For You?
10th January 2019 Paul Andrews
When it comes to pensions there is a lot to think about. Here the team from Seven Investment Management weigh up the pro's and cons of pension consolidation.
Modern life can be complicated. We 'suffer' from an overflowing abundance of all kinds of things. And it's not just about a cupboard full of 3-for-2 vitamins or mismatched tea spoons. We're talking about something much more important – pensions.
The job-for-life concept bypasses most of us these days. So it's likely you've ended up with a series of work-related pensions lurking from your past. Every so often you get a letter, or several, from various providers. You may wonder if you need to do something. More than one in five people have even lost track of past pensions.
Is it good to have lots of pensions? Or is it just annoying? What should you do? Should you consolidate your pensions?
There is a case for pension consolidation. Combining your various pensions into a SIPP (Self Invested Personal Pension) might make it easier to manage your retirement savings. You may be able to save on charges and benefit from a wider range of investment choices.
Older-style pensions often have complex or more expensive charges. And they may not give access to the full range of pension freedoms introduced in 2015, which can offer more flexibility. For example, you may be able to take a larger sum of cash up front under the new rules.
If your health is poor and you have a defined benefit pension, you might well be more interested in extracting a large lump sum, rather than an income for life. In fact, high-transfer values have even tempted healthy people to come out of final salary pensions. But these are dangerous waters, so read on...
You'll need to look into whether you will lose out on any employer contributions. And you could lose specific protections or bonuses tied to an individual pension. Consider any exit penalties too.
After some high-profile cases of pension funds falling over, you may be worried that one or some of your pension pots aren't in safe hands. But don't pull out in a panic. Most schemes are protected by the state-sponsored Pension Protection Fund.
Back to final salary/defined benefit pensions – this is the big one. If you come out of this type of pension, you're giving up a guaranteed income that will last the rest of your life. This is a huge decision, and one that you really need to get professional advice on.
What to do?
Decisions about moving in and out of pensions can be life-changing. And then there are more decisions required regarding the underlying investments. Lots of people have no idea where their pension money is invested. You might also benefit from reviewing your investments strategy.
Your pension dilemma is unique to you. We suggest you talk to someone who understands the big picture and knows what to look for in the fine print.
Seven Investment Management offer a complimentary pension review, so to find out more and book a free review visit them online today here