Should I combine my pensions now I'm retired?

20 July 2012


I am 65 and three quarters and am semi-retired. I have a deferred state pension and four small pension pots with different providers.Together, these pots total about £100,000. I expect to retire fully when I reach 66.My question is, should I combine my pension pots in order to have more clout in negotiating an annuity, or take four separate annuities?Or should I take the tax-free lump sums to be invested for income and then use the balance of the pension pots for income drawdown when required, instead of taking an annuity - seeing as annuity rates are so poor?
RK, Abingdon


Annuity rates are at historically low levels and there are considerable downward pressures that are likely to reduce rates further. A European directive banning gender discrimination when pricing annuities will see male annuity rates fall from December 2012.

Following this, Solvency II, which is a directive to ensure all EU-based annuity providers have sufficient capital adequacy will further reduce annuity rates from 1 January 2014.

Find the best annuity rate for your circumstances

With regard to your own pensions, typically combining four smaller funds, assuming there are none with guaranteed annuity rates or guaranteed minimum pensions, into a single annuity will improve your annuity rate.


However, there is a tipping point where the annuity rate will actually start to decline. This amount is typically between £250,000 and £500,000, depending on the annuity provider, because of the increased liability faced by the provider.

It's often sensible to take the allowable tax-free lump sums from your pensions. This gives you more flexibility in terms of how you generate income and has tax advantages, over a pension annuity, if you simply use this money to purchase an annuity with the proceeds.

Drawdown is a useful tool for deferring taking an annuity but seek independent advice before proceeding.