Consolidating your pensions

Consolidating your pensions

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.

Consolidating your pensions

This is called consolidating your pensions, or pension switching. It doesn't alter the beneficial tax position that pensions attract. But 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.

If you’re considering consolidating your pensions, it’s important to weigh up the benefits and drawbacks. As it’s often difficult to compare the benefits offered by different pension schemes, we make it easier for you by outlining some of the possible advantages and disadvantages to consider below before moving to a Self Invested Personal Pension (SIPP).

Pensions and tax rules are complex and normally it's 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

  • Access to a wider range of investments – not all pension schemes give you access to a wide range of investments. Some only allow you to choose between a very limited range of funds, and some may be limited to the funds offered by your pension provider. So you may decide to move these savings to a pension scheme that offers a wider range of investment options – shares , funds , exchange traded funds and more, allowing you to build the portfolio that suits you.
  • Flexibility and freedom to choose your own investments – with a SIPP, you actively choose 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. With the wide range of investments available in SIPPs, you have the flexibility to seek out alternative investment options which you may want to take if you have the necessary experience and skill in investing.
  • Keep on top of costs – some older investments can carry higher costs than some of the options now available. For example exchange traded funds (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.
  • Everything in one place – managing multiple pensions can be difficult and time consuming. By consolidating, you can manage all your pension investments in one easy-to-use wrapper at a glance.

Possible disadvantages of consolidating your pensions in a SIPP

The benefits that you can lose by transferring to a SIPP, as listed below, may apply even if you're 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. Trust-based defined benefit schemes offer the best advantages and it can be difficult to know what type of pension you have and the benefits your pension scheme offers. 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 – if your current pension plan offers these, they normally provide a higher income than is available from other annuities today. By transferring, you'd lose access to these. Also, 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 often available, but some company schemes include the option to make discretionary increases too.
  • You're responsible for the management of your own pension - while you’ll have freedom and flexibility to choose your own investments with a SIPP, this means you’ll be responsible for the performance of your investment choices.
  • You could be liable for an exit penalty – 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 may save money by using existing schemes – as you're likely to incur new charges for the administration of a SIPP, you may be better off using your existing personal pensions.
  • You could be ‘out of the market’ - if you choose to sell assets and then transfer cash you'd be ‘out of the market’ until you re-invest. This means that any gains you might have made during an ‘out of the market’ period will be lost and you won't be able to sell your assets while they transfer from your current provider to your new one. This could be three days for securities and possibly two weeks for funds but, some transfers between pension schemes can take many months.


A closer look at the considerations for different types of pensions

These tables look at the benefits that you could be giving up when you transfer different types of pensions. Remember, we don’t accept transfers from final salary pension schemes, as it’s unlikely to be in your best interest to move, due to the valuable benefits they offer.

​Defined benefit scheme - final or average salary benefits

What sort of scheme can these be?
  • ​Company pension scheme
  • Local authority or civil service pension schemes
What benefits might I give up, if I transfer from such a scheme?
  • ​Income related to salary during employment - likely to be better than what you'd get with defined contribution schemes
  • Negative value adjustments can be applied to underfunded schemes
Is there a requirement to receive advice if transferring to a new provider? ​Yes

Unfunded scheme, for example, some civil service and local authority plans can't be transferred


Defined contribution scheme - trust structure

What sort of scheme can these be?
  • ​Employer-sponsored money purchase schemes
  • Small Self-Administered Scheme (SSAS) Executive Personal Pension Schemes.
What benefits might I give up, if I transfer from such a scheme? ​May include:
  • Guaranteed annuity rates
  • Death benefits
  • Spouse's pension
  • Employer meeting some or all of the scheme's costs
  • Inflation-linked or discretionary increases in the pension savings
  • Negative value adjustment - a reduction in the value that can be applied to with profits funds, in particular to reflect a fall in value by the investments in the fund.
Is there a requirement to receive advice if transferring to a new provider? ​No

But regulations have been introduced that require advice before transferring assets worth £30,000 or more from a pension with what are termed 'Safe guarded benefits' for example, guaranteed rates of increase or minimum pension payments


Defined Contribution Scheme - Contract Structure

What sort of scheme can these be?
  • ​Group Personal Pension
  • Group Stakeholder Pension
  • Group SIPP
  • Workplace savings/auto enrolment
What benefits might I give up, if I transfer from such a scheme? ​May include:
  • Death Benefits
  • Spouse's pension
  • Loyalty bonuses
  • Employer meeting some or all of the scheme's costs
  • Negative value adjustments can be applied
Is there a requirement to receive advice if transferring to a new provider? ​No

But regulations have been introduced that require advice before transferring assets worth £30,000 or more from a pension with what are termed Safe guarded benefits eg guaranteed rates of increase or minimum pension payments.


Defined Contribution - Personal Pension

What sort of scheme can these be?
  • ​Self Invested Personal Pension
  • Personal Pension
  • Stakeholder Pension
  • Section 32 policy (also know as buyout bonds)
  • Retirement Annuity Plan
What benefits might I give up, if I transfer from such a scheme?
  • ​Unlikely to be benefits that would be lost. But check your terms
  • Negative value adjustments can be applied
Is there a requirement to receive advice if transferring to a new provider? ​No


Other Pension schemes

What sort of scheme can these be?
  • ​International Personal Pensions
  • Open Annuities
  • Qualifying Registerd Overseas Pension Scheme (QROPS)
What benefits might I give up, if I transfer from such a scheme?
  • ​Unlikely to be benefits that would be lost but check your terms.
Is there a requirement to receive advice if transferring to a new provider? ​No



Other things to consider

With-profit funds

Traditionally, personal pensions used with-profit funds. They were low-risk investment schemes that pooled the policyholders’ premiums. Normally, with-profit funds blended investments in shares, corporate bonds and gilts, and provided a moderate risk investment offering returns that the life assurance company found appropriate.

In years when good returns were generated, some would be withheld in the fund reserves, to ‘smooth’ performance. And in years when an asset class underperformed, the returns to investors were topped up from those reserves. However, since 2000, many of these funds have significantly reduced their investments in the stock market and many with-profits funds are very heavily invested in bonds, so they’re not able to operate in the way they were originally designed. This means returns have been lower than investors expected and the nature of the investments may no longer meet your needs. If you aren’t satisfied with the performance of your fund, you could consider closing it and investing your money elsewhere.

However, you should check with your provider whether there are any exit costs or penalties for withdrawing your savings, as well as checking whether you could qualify for benefits such as guaranteed annuity rates, before you decide to close it. If you’re unsure, seek independent advice.

Closed funds

Some pension providers have been absorbed into other companies. If you have a pension fund with one of these providers, your fund may be closed to new investment, which can adversely affect its investment performance.

Lifestyling

Lifestyling is a concept that adjusts how your pension fund is invested according to the length of time until your retirement. Lifestyle pensions aim to take more risk in the early years, for example through substantial investment in shares. They try to reduce risks as you move closer to retirement.

Not all pension plans offer lifestyling. Many older pension plans and most SIPPs don’t so you'll need to actively consider moving into lower risk investments, such as bonds and cash, as you approach retirement. This is to avoid taking a high risk at a time in your life when you can’t afford to suffer falls in market value.

On the other hand, more and more people opt for pension income drawdown – rather than taking out an annuity. If you choose income drawdown, your funds could remain invested. As such, a lifestyle policy may not be appropriate.

You need to decide what's right for your needs

As we don’t provide financial or tax advice, you'll need to decide what's best for you. If you decide that a SIPP is right, neither Barclays Stockbrokers nor the pension provider, the AJ Bell group, is required to make sure you’re in the right plan or that you've chosen the best investment strategy.

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. Remember, we don’t provide financial or tax advice. 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 aren't 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.

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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.
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