Should you move your pensions into one pot?
To transfer or not to transfer?
The introduction of auto-enrolment in the last 10 years has meant that retirement planning starts as soon as we enter the world of work, however, with most people holding various jobs during their lifetime, keeping track of your pensions can be difficult. The option to combine your pension could help you consolidate your payments and potentially make planning for your retirement easier.
The different types of pensions ranging from individual pensions (IP) to defined benefit (DB) to defined contribution (DC) mean we now appear to be spoilt for choice on how to manage our pension pots. Therefore, we have created a guide on the pros and cons of moving your various pensions into one pot to see if transferring is right for you:
Five reasons to transfer:
Holistic view
Combining pensions into one pot allows you to see all the money you have saved for your retirement in one place and retirement planning can be done with one provider.
Convenience
Tracking down numerous pensions can prove difficult, however, with one pension pot you only need to keep track of the fund investments and potential changes for one pension rather than several.
Flexibility
Transferring a DB pension into a DC pension would permit you to spread your income through retirement as opposed to being stuck with a fixed amount at the end.
Inheritance
In a DB pension, if you die before the age of 75, there may be a standard pension given to a spouse, however, the amount may be limited, and it is unlikely there could be a lump sum of inheritance to children or other family members if desired.
Health
DC pensions can prove more beneficial to individuals who suffer from poor health as they are based on average life expectancy rather than how long you are likely to live. This also means that if there is a balance left in their pension fund when they die this could potentially be passed on.
Five reasons not to transfer:
Loss of potential benefits
Some pensions offer special features or benefits that you may lose if you decide to transfer your pension to another provider. Additionally, individuals need to be cautious about potential mis sold pensions while making such decisions. Falling into a misleading pension scheme could have detrimental long-term consequences, making it essential to do thorough research and seek expert advice.
Fees and charges
Providers may charge a fee to move your pension and for smaller pension pots in particular these charges may not be worth it.
Inflation
DB pensions provide greater protection against inflation which could grant more reassurance to individuals that they wouldn’t need to manage this risk as closely themselves.
Provision for survivors
DB pensions provide a minimum level of pension to a spouse by law, however, a DC pension would end when you die unless you made further provisions yourself (such as taking a ‘joint life’ policy).
Investment risk
DB pension schemes are not affected by the stock market as the amount of pension you will receive remains the same, however, with DC pensions what you have to live on will depend on how well the funds your pension is invested in have held up over time.
If you are thinking about transferring your pension ensure you do your research or contact a financial advisor to discuss your options and make the right choice for your future.
