Reasons not to consolidate your pensions
Combining all your pensions may not be the right answer for you. This is where it’s a good idea to talk to a financial adviser or use a guidance service before taking any action. Reasons not to consolidate your pensions include:
Older pensions may have valuable features which you’ll lose if you transfer out, such as guaranteed annuity rates, a lower minimum retirement age or the ability to take more than 25pc as a tax-free lump sum.
Some older schemes have exit penalties if you transfer your money to a new pension before your 55th birthday. Once you reach age 55, you cannot be charged more than 1pc when transferring out.
Normal minimum pension age
Currently it is possible to access your defined contribution pension from age 55. However, the Government is increasing the minimum pension age at which you can normally access your benefits to age 57 from April 6, 2028. The new rules are complicated and allow some people to keep the minimum age of 55 beyond this date, but this could be lost if a transfer is made to certain other schemes.
Small pension pots
There are tax advantages of keeping small pension pots separate. The tax rules allow you to take up to three personal pensions with funds up to £10,000, without counting against your overall pension lifetime allowance (the standard lifetime allowance is £1,073,100). This is a useful trick if the total value of your pensions exceeds your lifetime allowance.
Another tip is that cashing in small pension pots doesn’t trigger a cut in your annual allowance from a maximum of £40,000 to the £4,000 money purchase annual allowance, so isn’t disruptive to your savings plans. Accessing your pension flexibly by taking drawdown income or cashing in a larger taxable lump sum would trigger the £4,000 money purchase annual allowance.
Find any missing pensions
To find any missing pensions use the Government’s tracing service. This will help you find the contact details for your workplace pensions or personal pensions.
Consolidating pensions when you change job
One of the ways to keep track of all your pensions is to get into the habit of combining your pensions as you change jobs, rather than leaving it to when you are within touching distance of retiring. Your workplace pension won’t automatically follow you if you switch employers. You can leave your old pension where it is, or you can choose to transfer it to your new employer’s workplace pension scheme or to a separate individual pension.
Watch out for pension scams
Pension savings are targets for fraudsters. If someone contacts you out of the blue offering to help you transfer your pension, this is illegal and is likely to be a scam. If you’re concerned, contact the Financial Conduct Authority, the City watchdog, to check they are legitimate.
Pensions doctor Kate Smith, of pension firm Aegon, solves your retirement issues. Write to Kate with your pension problem via firstname.lastname@example.org. Columns are published twice a month on Tuesday mornings