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Should I Combine My Pensions?

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The days of having one employer for life – and a Final Salary Pension – are long gone. Today’s world sees people demanding more flexibility from their careers than ever before, pivoting between employers every few years, and even changing industries.

The result? We collect pensions quicker than I collected football stickers in the 90s.

We’re Financial Planners so we get asked all the time: “can you tell me what to do with my pensions?”

As with everything in the world of Personal Finance, there is no ‘right’ answer. Everyone is different, has different circumstances and objectives.

It can be a delicate decision, and the answer lies in two places: the facts and the feelings.

The Facts

The first thing to consider is what are the features and benefits of each of the pension schemes… and try to find out what features you’d lose if you transferred away.

  • Are there any guarantees attached to the old plans which are particularly relevant to your planning?
  • Do they promise you a Guaranteed Annuity Rate which is higher than you can get on the market?
  • Does the plan let you take more Tax-Free Cash than you can get under current rules?
  • Is there a protected (early) retirement age… and does that fit in with your plans?
  • What happens to the plan if you die? Can you leave it to whoever you want?
  • Does the plan let you take income in the way you want? (The rules have all changed and some old policies can’t facilitate the new rules… you’re often limited to just an annuity. Which might not be right for you).

Next, you need to have a look at some of the other things.

  • Stuff like cost… what does it cost to run the pension plan itself?
  • Which fund(s) are you invested in, and what does that cost?
  • Is there a charge to switch between funds if you wanted to?
  • How many funds you can choose from within the pension itself? Are there any which fit your needs? If so, how many?
  • Are they all Active funds, or can you use Passive too?
  • Can you access the plan online… and is it easy to manage, to control?

When you’ve got into the nuts and the bolts of each of your schemes, it should become apparent if they’re decent or not, how they differ, and in-turn which of the schemes is the most user-friendly.

The last thing you want to do is update an old pension plan and lose its benefits… and regret that decision later. That’s why it’s almost always safer to enlist the help of an expert rather than “having a stab at it” yourself.

The Feelings

The second thing to consider is actually; why are you thinking about moving the schemes in the first place?

In our experience, certainly when it comes to pension schemes, people want two things:

  1. ease of administration (which translates as fewer letters through the door), and
  2. clarity on what they have. They want to be able to see everything all in one place.

Again, speaking from our experience, the Feelings side of things tends to win out. People seem to be willing to forego, give up, ignore, some of the possible benefits of keeping their plans separate, if moving them allows them to feel more in control.

And that is such an important point.

If combining your pensions into one plan – either one you already have, or a brand spanking new one – means you will be more deliberate about your financial future, more engaged, more switched-on… then surely that’s going to give you a better lifetime outcome than just literally closing the drawer on them?

Because that’s the point. Our behaviour is usually the single biggest determinant of our financial success. Plans, products and portfolios are secondary.

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Cost is an important factor in pension planning. Paying less in running costs means you keep more for yourself. And over decades, costs can add up to eye-watering numbers.

But cost isn’t the end of the conversation. As above – if you end up paying a little more for your consolidated pension fund, but you’re more engaged and interested – more often than not you’re going to end up in a better place. Allowing yourself to be deliberate about your financial future always pays off.

Clearly, there’s loads to think about. If you feel a bit overwhelmed, or the numbers are a bit high so you fear the cost of a mistake, then feel free to get in touch via the contact form and we’ll get right back to you. We charge fixed fees for reviewing old plans and products, and you can learn a bit more about the Review Process at the same time.

We look forward to speaking to you.

  • The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.