Pension consolidation
What you need to know
The government mentioned a ‘one pot’ pension for life in the 2023 autumn statement. The mechanics of this are yet to be refined and it may be that you have accrued several pension pots throughout your career to date.
In the current landscape, it appears that more and more companies are developing tools to help people easily consolidate their pension plans.
Reasons for encouraging people to do this include:
- easier to see and manage
- more control over investments
- no set up fees
- easy access 24/7
- potentially lower costs
- reduced administration
- easily track performance.
What is not so easy to find on the websites are the reasons why you should not consolidate.
A caveat around ‘not being right for everyone’ should not be viewed as a throw-away comment.
What are the risks?
One of the most important things to check if you are considering moving your pension, is whether there are any guarantees. There are several very valuable guarantees that can be associated with your pension; bonus rates, guaranteed annuity rates and protected tax-free cash are just a few examples.
Transferring your pension is highly likely to result in the loss of any guarantees. The value of some benefits can be substantial and once lost, they are rarely recoverable even if you invoke a cancellation policy.
The funds your current plans will most likely be sold and the cash transferred to the plan you consolidate into. You will then have the choice of where you wish to invest, and the plan provider will offer a selection of funds from which you can choose.
Your choice of funds is very important as they all have different levels of risk and costs.
You may also wish to consider funds that take environmental, social and governance factors into consideration.
If you are planning on moving your plans you should check that the provider offers investments that are suitable for your needs and future objectives.
The provider may claim that there are no set up fees, but you should be aware that there will be ongoing transaction costs for the underlying investments as well as ongoing fees charged by the provider for administration services.
It is also important to check that there are no exit charges or penalties if you transfer out of your current plans.
Why advice is important?
Despite the risks, pension consolidation may benefit you; however, it is essential that your current pensions are thoroughly reviewed and compared to the potential new provider before proceeding.
By appointing a Financial Adviser, you will benefit from a full review of your existing pension arrangements as part of a wider financial plan. What’s more, if the adviser is independent (IFA), they can provide impartial solutions from the whole of the market.
A reputable IFA will gather information about your current needs and circumstances including your income and expenditure, assets and liabilities and talk to you about your future plans and objectives.
They will fully review and assess each of your existing plans for the following:
- your attitude to investment risk
- capacity to absorb losses over the term of your investments
- asset classes and diversification of your investments as well as the performance and costs
- fund range available, the retirement options and your tax-free cash entitlement
- whether there are any valuable guarantees or bonuses applicable and if so whether these would be lost upon transfer
Once all this information has been gathered, the IFA will look at all the other options available and conclude whether consolidation is right for you and if so, they will recommend a pension wrapper and an investment strategy together with all the necessary forms to facilitate the recommendation, pre-filled for your convenience.
It is essential to review your personal circumstances and financial arrangements on a regular and ongoing basis to ensure they continue to meet your needs and financial objectives and take into account any legislation changes or expected changes in your circumstances, requirements and wider financial affairs.
An IFA will provide this review as part of their ongoing service. Appointing an IFA will incur fees and there are no guarantees that the advice provided by an IFA will provide you with capital growth on your investments. However, you will be safe in the knowledge that your pensions have been fully reviewed and full consideration has been given to the benefits and drawbacks before any advice to transfer is provided.
Beware of pension scams
Whatever you decide to do, you should make absolutely sure that the people and the companies you are dealing with are legitimate and are regulated by the Financial Conduct Authority. You can check using the Financial Services register.
Summary
While a ‘one pot’ pension has its benefits; it is important to understand the benefits you have accrued so far. Speak with one of our Financial Planning Consultants today to see if consolidation is appropriate for your plan.
Disclaimers
The information set out in our publications is for information purposes only and does not constitute advice to undertake a particular transaction. Appropriate professional advice should be taken on specific issues before any course of action is pursued. Any advice provided by a Crowe Financial Planning Consultant will follow only after consideration of all aspects of our internal advice guidance.
Past performance is not a guide to future performance, nor a reliable indicator of future results or performance. The value of investments, and the income or capital entitlement which may derive from them, if any, may go down as well as up and is not guaranteed; therefore, investors may not get back the amount originally invested.
The Financial Conduct Authority does not regulate Trusts, Tax or Estate Planning.
DisclaimersThe information set out in our publications is for information purposes only and does not constitute advice to undertake a particular transaction. Appropriate professional advice should be taken on specific issues before any course of action is pursued. Any advice provided by a Crowe Consultant will follow only after consideration of all aspect of our internal advice guidance. Past performance is not a guide to future performance, nor a reliable indicator of future results or performance. The value of investments, and the income or capital entitlement which may derive from them, if any, may go down as well as up and is not guaranteed; therefore investors may not get back the amount originally invested. The Financial Conduct Authority does not regulate Trusts, Tax or Estate Planning. |
