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Consolidating your pensions

24 September 2019

5 minute read

You may have built up several pension pots from various employers during your working life. It’s possible to bring these pension funds together in one place. This is called consolidating your pensions, or pension switching.

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek independent advice.

What you’ll learn:

  • What the advantages and disadvantages are of consolidating your pensions in a SIPP.
  • Why you should check whether you will lose any benefits when transferring pensions.
  • Why it’s important to review the level of risk you take with your pension as you approach retirement.

If you’ve worked for several employers over the years and have joined lots of different pension schemes, managing multiple plans can be both difficult and time-consuming.

Consolidating your pensions into a Self-Invested Personal Pension (SIPP) can make it easier to manage all your pension investments in just the one wrapper, but it’s important to weigh up the benefits and drawbacks first.

Here, we’ve outlined some of the possible advantages and disadvantages to consider before moving to a SIPP.

Remember that transferring your pensions does not alter the beneficial tax position that they attract. However, you need to be aware that tax rules may change in the future and the value to you of any favourable tax treatment will depend on your individual circumstances.

Pensions and tax rules are complex and normally it is not possible to recover your original pension arrangements if you change your mind. If you’re unsure, please seek independent financial and tax advice to make sure you won’t lose any valuable benefits as we don’t offer advice. If you still work for an employer, you may well lose significant benefits when transferring to another pension scheme or a SIPP.

Possible advantages of consolidating your pensions in a SIPP

One of the main benefits of a SIPP is that they usually give you access to a wider range of investments compared to other pension schemes, which may only allow you to choose between a very limited range of funds or may be restricted to the funds offered by your pension provider.

SIPPs typically enable you to invest in shares, funds, Exchange Traded Funds (ETFs) and more, allowing you to build the portfolio that suits you.

With a SIPP, you’re responsible for actively choosing how your pension savings are invested, giving you the freedom to see how your investments are performing and to check whether you’re on track to receive the income you want when you retire. If you’re unsure where to invest, you should get professional advice.

Another potential benefit of SIPPs is that they can help you keep on top of costs. Some older investments can carry higher costs than some of the options now available. For example, ETFs can be cheaper than conventional tracker funds. Reducing administration charges associated with your investments, either by consolidating smaller pots or seeking out fixed price administration charges can help to reduce the adverse effect of charges on your pension fund.

Possible disadvantages of consolidating your pensions in a SIPP

The benefits that you can lose by transferring to a SIPP, which we’ve listed below, may apply even if you are no longer an active member of a company pension scheme. If you’re still an active member you could also lose employer contributions which are very valuable. If you’re unsure about the type of pension you have and the benefits it offers, please speak to your current pension administrator or an independent financial adviser to ensure you don’t lose out.

If you have any of the following benefits in your current pension, you’ll lose them if you move to a SIPP:

  • Loyalty bonuses for staying in the pension plan - these can amount to significant sums of money which you could lose when you transfer
  • Guaranteed Annuity Rates or Guaranteed Minimum Pension (known as “safeguarded benefits”) – if your current pension plan offers these, they normally offer a higher income than is available from other annuities today. By transferring you would lose access to these. Please note that we don’t accept transfers from defined benefit schemes
  • Spouse’s pension – some company schemes may offer a pension to your spouse once you die
  • Discretionary or indexation increases in pension fund – increases in benefits to offset the impact of inflation are frequently available, but some company schemes include the option to make discretionary increases too 
  • You may save money by using existing schemes, where costs could be very low or are paid for by the sponsoring employer. You’ll incur new charges for the administration of a SIPP, so the difference could be a relevant factor
  • If you plan to consolidate small pension pots in a SIPP, you may be subject to the Money Purchase Annual Allowance (‘MPAA’). This limits the amount you can pay into to a money purchase pension scheme once pensions have been flexibly accessed, before a tax charge is payable. The MPAA won’t normally be triggered if you cash in small pension pots valued at less than £10,000. Consolidating small pots would mean you lose the ability to benefit from the small pots rule.

Bear in mind too that some pension schemes charge a penalty when you transfer to another provider. Always ask your current provider about any penalties and costs, as well as the cash amount that your current pension fund would pay you when switching to another pension scheme.

You can transfer investments – you do not have to transfer in cash. Bear in mind that if you sell investments to transfer in cash, you will be ‘out of the market’, until you re-invest your money. Some transfers between pension schemes can take many months, and so any gains that you might have made during an ‘out of the market’ period will be lost. You’d also miss out on any corporate actions such as rights issues and on voting rights as well as any shareholders’ benefits, for example, discounts on services, which you may not receive on the same terms when you repurchase the shares. In addition, you’ll need to factor in dealing charges if you decide to sell and repurchase investments.

Find out more about transferring accounts to us

Remember, we don’t accept transfers from final salary pension schemes or safeguarded benefits. If you are thinking of transferring these you must speak to a Financial Adviser.

The onus is on you

As we don’t provide any financial or tax advice, the onus is really on you. Bringing your pension funds into one place and choosing your own investments may get you better results or it may not. It’s important to consider how switching or consolidating pensions affects your financial and tax position. If you’re unsure, please seek independent advice tailored to your individual circumstances.

Remember, tax rules can change and the value of tax relief will depend on your individual circumstances. SIPPs are not for everyone. You need to have the necessary skills to invest your own pension fund as the value of investments can fluctuate and you could get back less than you invested.

What is a SIPP?

If you’re looking for greater control over how your retirement savings are invested, and you have investment expertise and the necessary time then a self-invested personal pension (SIPP) could be worth considering.

Why you're never too young to save for retirement

Retirement might seem a long way off. And if that’s the case, then great, because you’re in the best position to start planning for what should be the longest holiday of your life.

Types of pension

Pensions can seem complex and daunting, especially if you’re new to them. But there are lots of options available to suit individual needs and circumstances. We take a look at the main types of pension and explain how they work.