I have two substantial pensions with Aviva and Scottish Widows worth in excess of £500,000 each. I cannot put any further money in as I am limited by the lifetime allowance. Both funds are administered through a third-party manager.
Should l combine my pensions and ditch my third-party manager?
The pension lifetime allowance of £1,055,000 is likely to increase with inflation each year. If you exceed it, when you take your pension benefits you will face a tax charge. It is sensible to stop making pension contributions, unless, as a result, it means you will miss out on generous employer contributions.
Each of your pensions is likely to offer a wide range of investment fund options, so you should select options which are suitable for you. It is unlikely that you can cut out investment fund charges, although you should be able to reduce them by investing in the funds managed by Aviva and Scottish Widows or by selecting tracker funds.
There are generally advantages in consolidating different pension pots, including making the administration easier if everything is in the same place. However, as you only have two large pension pots your administration should be relatively easy to manage.
It could be that you can move both of your pensions to a different scheme, which is more flexible or has better investment options or lower charges.
However, there may be costs involved in transferring your pension and you could lose valuable guarantees, such as guaranteed annuities, which are not usually available on newer-style pensions. You might also miss out on investment gains if you are out of the market while the transfer takes place.
Before deciding whether to transfer your pensions, you should make sure that you fully understand the charges and terms and conditions for both of them. This will give you a better idea whether consolidation is a good idea. However, these are really important decisions and so if you’re not sure what you’re doing you should take independent financial advice.
Patrick Connolly, certified financial planner at Chase de Vere
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