Will I lose out if I consolidate my pensions?

13 November 2019

Q

I have four private pensions including my current employer pension. How do I go about consolidating them all into one easily manageable pension and what are the financial implications of moving them?

From
MG/York

A

While consolidating your pensions might make them easier to manage, there are several points you need to consider before you do so.

Each pension could be set up differently with different charges and you might find that you incur exit fees when you combine pots.

You could also potentially be giving up valuable benefits by consolidating them. For instance, some older pension products have guaranteed annuity rates attached to them. These can be significantly higher than the rates currently available, so be sure you will not throw away this valuable benefit. Some older pensions, for example, can include the ability to access a pension before the age of 55, while others can allow you to withdraw tax-free cash in excess of the current 25% limit.

You have not said how big your pensions are, but there are various small pot privileges that you could lose by merging your pots. For instance, if you are still saving into your pension and take taxable cash from a pot worth more than £10,000, then you could fall foul of the money purchase annual allowance, which significantly reduces the amount you can contribute while benefiting from tax relief.

In addition, while accessing a pension generally counts against your pension lifetime allowance (currently £1,055,000), you can take up to three pensions of under £10,000 without it impacting on your allowance.

I would recommend speaking to a financial adviser before making a decision to consolidate to make sure you are not throwing away valuable benefits or incurring tax charges. To look for an adviser in your area, visit Unbiased.co.uk.

It is worth checking because in some cases there are valuable savings to be made by consolidating pots if you can move money from more to less expensive providers.

Helen Morrisey, pension specialist at Royal London

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