Can I take from my five pension pots separately or must I amalgamate them?

31 August 2018


I have five pension pots from various jobs and I want to take the 25% tax-free lump sum. My question is, can I take it from all the pots separately or do I need to amalgamate them to maximise the potential fund release?

CM/St Neots


There is no single answer to this, as each one may be treated differently, according to the type of policy and the pension provider.

As the various plans were used for building up a pension, it is unlikely that you would be able to just take the tax-free cash and leave the rest invested. Instead, you would have to either buy an annuity or transfer the residual fund into an income drawdown plan. You don’t need to actually draw any income.

Clearly, you would not want to have five separate income drawdown policies, so if you want to leave the remaining funds invested it is normally best to combine them into a single plan. The choice will depend largely on charges and on the range of investments offered by the particular provider.

“Be careful about losing valuable benefits”

You then need to be careful about losing valuable benefits by taking the tax-free cash and moving the remaining funds. Older plans sometimes carry a ‘guaranteed annuity rate’, which is normally much higher than you could buy on the open market. You can still take tax-free cash from such plans, but if you move the remaining funds elsewhere – either for annuity purchase or income drawdown – you will lose the guarantee.

Another potential pitfall is early encashment charges: some older plans apply a reduction to the fund value if you draw the funds – or transfer them elsewhere – before the maturity date.

So really, you have to obtain full information from each provider. This will include the options available from each one plus any special annuity rates, early encashment charges, and so on.