6 reasons to bring your pensions together
We often talk about our pension as though it’s one single entity but the reality is that your pension is more likely to be a number of separate pots that you’ve built up over your working life.
Trying to keep on top of pensions across different providers can be time-consuming and you can’t always see the full picture. That’s why many see the attraction of consolidating their pensions in one place. Not only can it save time and hassle, but it makes it easier to see how much you have, where your money’s invested and how it’s performing.
One way of bringing your pensions together is to transfer them to a Self-Invested Personal Pension (SIPP). With a SIPP you choose what to invest in and when, and can take an income when and how you like after the age of 55.
6 reasons to bring your pensions together in a SIPP
Most pensions are portable and you have the freedom in most instances to move them to a provider of your choice. Of course, it’s not always in your best interest to move a pension and we cover the things you need to think about later in this article. But first let’s take a look at some of the ways you could benefit from bringing your pensions together in a SIPP.
One company to deal with, saving you time and hassle
Having only one pension administrator means you’ll have just one set of paperwork and can view and manage your pension in one secure online area. Knowing with certainty the size of your pot means you can react if you feel you’re not investing enough and be able to plan ahead more effectively.
Easier to manage your investment mix and level of risk
It’s important to have a well-diversified portfolio to help spread any performance risk. It could be that across your current pensions you hold a high percentage of investments in a particular fund, asset class or region. Being able to see your pension in one place makes it easier to see how your investments are split, and if you are over-exposed in a particular area then make changes to give you a more balanced portfolio.
Wide investment choice so you have more ways to help your money grow
The investments you choose to hold in your pension will impact how your retirement savings perform over time. The investments in more traditional workplace pensions can be more restricted than those in a modern SIPP, which give you a wide choice of investment options to help you get your money working harder.
Please note, if your employer is paying into a current workplace pension, you should leave that pension where it is or you may lose contributions from your employer.
Potentially lower cost, so you keep more of your money
Cost is one of the few elements of investing that you can control through your choice of pension provider, and it’s never more important than when it comes to your retirement savings. A seemingly small difference in cost at the start of your savings journey can add up to a huge difference by the time you come to retire.
There is typically a service fee, usually a percentage of the money you have invested, payable to your pension provider which covers the administration of your contributions. In addition you’ll pay a separate fund management charge for each of the fund providers you invest your money with. So when comparing service fees, make sure you compare the fund charges too.
Flexible income options at retirement
We now have more choice and flexibility in how we access our savings than ever before. The usual age we can access our pension from is 55. Your main choices are to take tax-free cash, flexibly access your pension through income drawdown or buy an annuity to take a fixed guaranteed income - or indeed any combination of these. A SIPP offers all these, but it may be that your old workplace schemes do not give you the full range of options so it’s important to check. Please note, if your employer is paying into a current workplace pension, you should leave that pension where it is or you may lose contributions from your employer. Find out more about pension income options.
The Government’s Pension Wise service also offers free impartial guidance to help you understand your options at retirement. You can access the guidance online at Pension Wise or call them on 0800 138 3944.
Extra benefits for larger pension pots
Some providers may offer additional benefits if your pension investments are over a certain value. Pooling your pensions together could help you take advantage of this. For example, Fidelity provides automatic access to Wealth service benefits to customers with over £250,000 invested with them. These benefits include a reduced service fee of just 0.2% (ongoing fund management charges apply) and a Relationship Manager to answer your questions and provide guidance on everything from investment strategy to fund perfomance.
Things to think about before making a transfer
Transferring pensions may not be suitable for everyone, and although in many cases it’s relatively simple to move they can be complex at times. As with all financial decisions there are important factors to consider and you should check these with your existing providers before transferring out.
Do any of my existing pensions contain valuable benefits?
One of the most important things to check is whether any of your existing pensions contain valuable benefits that will be lost if you transfer away. For example, final salary pensions, guarantees of income or investment returns, early retirement options, a greater entitlement to tax free cash than the standard 25%, life insurance, to name a few. If this is the case it’s likely that it won’t be in your best interest to transfer, and it’s essential you receive financial advice if you still want to proceed in order to make an informed decision.
Will I be charged exit fees?
You should check to see if your current plans will impose an exit fee if you go ahead with a transfer. Fidelity cover up to £500 if any of your current providers charge exit fees (T&Cs apply).
How do the charges and investment options compare?
Before going ahead with a pension transfer, we strongly recommend that you undertake a full comparison of the benefits, charges and features offered.
Are any of my pension pots under £10,000?
If the amount you wish to transfer is less than £10,000 then you may be able to take it all as a ‘small pot lump sum’ with your existing provider from age 55. You can usually take the tax-free part as normal with the balance taxable at your highest rate of income tax. Taking your money in this way doesn’t trigger the lower money purchase annual allowance that restricts tax relief on your future contributions to £4,000. It also doesn’t use up any of your lifetime allowance (the upper limit on tax-advantaged pension benefits). If you transfer such small pots into one account which then exceeds £10,000 then the option of taking it all as a small pot lump sum could be lost.
What if I change my mind?
If you transfer your pensions and then change your mind, your previous pension provider may refuse to re-instate your benefits. So check the cancellation period and whether your provider would be happy to take your money back within this period should you decide not to go ahead.
Full details can be found in our pension transfer factsheet.
See below for important information.
Pensions all over the place? Sounds exhausting
Make life easier and be better prepared for the future by bringing your pensions together. Plus get £20 to £1,000 cashback (exclusions, T&Cs apply)
The value of investments and the income from them can go down as well as up so you may get back less than you invest. Tax treatment depends on individual circumstances and all tax rules may change in future. This information is not a personal recommendation for any particular investment. If you are in any doubt whether or not a pension transfer is suitable for your circumstances we strongly recommend that you seek advice from an authorised financial adviser.
You cannot normally access money in a SIPP until age 55. Pension transfers can be complex and pensions with safeguarded benefits and advised transfers are not eligible for the cashback offer. Please read our pension transfer factsheet, cashback T&Cs and exit fees T&Cs which are available at fidelity.co.uk/cashback.
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