Over the course of your working life, the chances are you’ll change jobs a few times, picking up different pension pots along the way.
A fter a number of years, you may even forget about the odd pension pot. To help you manage your pots, it’s possible to bring them all together, making it easier for you to keep track of your retirement savings.
Don’t underestimate the importance of keeping track of your pension. The Pension Tracing Service reckons £3 billion is lost in UK pensions, affecting around five million people.
Combining your pension pots
Combining your pension pots can prove a good move in many circumstances, not least as it allows you to keep track of how your investments are performing more easily.
This is a definite advantage if you are approaching retirement and want to get a grip of your various sources of retirement income. Performance is another reason to get hold of all of your pension pots – if you’ve forgotten about one or more, the chances are they are not working as hard as you’d like. Poorly performing funds are of little use to you, and regular reviews are essential for anyone who wants to make the most of their retirement income.
Things to consider
There are a number of things to consider when you’re thinking about combining pensions:
1. If you have a defined benefit (DB) pension scheme, it’s probably best to keep it. DB schemes pay out a certain retirement income every year once you reach retirement age, based on your salary and the number of years you paid into the scheme.
2. If you are a member of an occupational pension scheme, you may be entitled to take more than the standard 25% tax-free lump sum. However, you could lose this entitlement if you transfer out.
3. You may have other benefits from your pension (for example, life cover or dependants’ benefits), so it’s worth checking these with your pension provider before transferring out.
4. If you have up to three small pension pots – each of up to £10,000 – you can take these as a cash lump sum, due to new rules introduced earlier this year by the Chancellor.
Exit fees
It’s also worth bearing in mind that you may pay exit fees for moving your pension pot, which may see a sizeable proportion of your hard-earned retirement income shaved off. For this reason, always check for fees and charges if you are transferring out of a scheme.
While many providers won’t impose a penalty for transferring (as they want the business), it’s still best to check this upfront.
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.
A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.
