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Posted 23 June 2017

Everything you need to know before consolidating your pensions

Whether you're moving jobs and want your pension pot to move with you, or consolidating your pensions at retirement to boost your funds, there is a lot you need to know before making a start. We talked to Jon Turner, Pension Transfer Specialist, for the key steps to consolidating your pension pots.

  • Consolidating your pensions helps you manage your money
  • How to work out which pension pots to combine
  • Make sure you check your benefits before transferring pensions

1. How do you consolidate your pensions?

Consolidating your pension pots is when you transfer one or more pensions into another. LV= research revealed that, on average, UK workers have nine jobs over 50 years of working life.

This means that, when you come to retirement, you could have to track down a number of pension pots that you have accrued over the years.

Most pension schemes allow customers to transfer money from them to another pension, or into them. If you decide not to transfer your money, don’t worry – the pension pot and the funds in it still belong to you. However the more pensions you have the more paperwork you will receive and this can become confusing.

To consolidate your pensions, notify the pension scheme providers and then fill out the necessary paperwork that they provide you with.

2. When is the best time to consolidate your pensions?

If you are changing jobs, your new employer may enrol you into their pension scheme, and will provide you with all the relevant information you need. This is a good opportunity to research your pensions and, if the new scheme has fewer charges or better suits your needs, transfer the funds from your old one.

As you approach your retirement, track down all your existing pension schemes and see which offers you the best benefits. Struggling to find them? Read our article on tracking down lost pensions.

If you are moving to a new role overseas, you may not be able to take your pension benefits with you.

‘UK pension benefits can only be transferred to an overseas pension scheme if it is recognised by HM Revenue & Customs as a qualifying recognised overseas pension scheme (QROPS),’ explains the Pension Advisory Service.

The government list of QROPS is online.

3. What are the different pensions that you can consolidate?

‘You can consolidate any pension, but doing it for the right reasons is critical,’ says Jon. ‘You also don’t want to lose out on any benefits you may have with your current provider, such as pensions with safeguarded benefits or defined benefit schemes.’

A defined benefit pension (DB) scheme calculates your pension pot based on your salary and the number of years you have worked for that particular employer. They give you a guaranteed income for the rest of your life from a specific age.

Many pension schemes also have specific benefits. As you won’t be able to transfer these benefits across from one pension to another, you should ask your pension scheme provider for the cash equivalent transfer value (CETV), or transfer value –the cash amount you will get instead of the benefit when you transfer across.

The alternative, a defined contribution (DC) pension scheme, over your period of employment, is added to from your salary and, if managed by your employer, contributions from the company you work for. This means the income you get upon reaching retirement can fluctuate, depending on how the funds have been invested and your income.

4. What are the benefits of consolidating your pensions?

‘When you have more than one pot, consolidating your pension makes it easier to track your retirement funds and make sure you maximise your retirement funds,’ says Jon.

You may also pay fewer charges – if you move onto a new company’s pension scheme, compare it to your old one to see if it’s worth transferring money across.

You should look beyond the pension charges, however, as this might shed light on further benefits.

‘Your current pension provider may not allow you to access the funds in the way you want to,’ Jon points out. ‘For example, some pensions prevent you from taking advantage of flexi-access drawdown funds.’

Flexi-access drawdowns are available to members of (DC) pension schemes.

‘If you take out a flexi-access drawdown arrangement, you will generally be able to take out 25% of the funds as a tax-free lump sum at the outset (and possibly more if you had a protected lump sum),’ explains the Pension Advisory Service. ‘If you do not take any tax-free cash sum at outset, you will lose this opportunity at a later date.’ Protected tax free cash not available if drawdown taken.

You also may want to reassess how well certain pensions are working for you.

‘Pensions are invested to match your attitude to risk,’ says Jon, which may change over time.’ Do you know whether your pension's funds are invested accordingly?

5. How do you make a start and who can help?

‘Before you start consolidating your pensions, you should gather all your pension information,’ recommends Jon.

‘Consider how you are going to access your pensions in retirement,’ Jon continues. ‘Ask yourself what you want from your pension – do you want a regular income, to take out lump sums, or both?’

‘If you are struggling to work out which pension suits your needs best, talk to a specialist pension adviser,’ recommends Jon

Every time you move careers, take the time to assess your pension options and work out what scheme will work best for you. It’s easy to let this fall by the wayside – especially as you are unlikely to give the retirement options much thought until you’re approaching the state pension age. If you are looking to retire soon, consider consolidating your pensions together, so that you’ll have fewer pots to track down and to maximise the funds at your disposal.

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