A job for life may be considered to be an outdated concept as the modern workforce adapts to more flexible working, employees working and living longer and also taking a more proactive view of jobs they actually wish to do to achieve the ultimate work/life balance.
If you have had various jobs it is likely that you have also collected a few pension pots along the way.
A recent paper published by the FCA shows that 89% of individual personal pension plans are in schemes which are closed to new business- meaning that approximately eight million accounts collectively worth £250bn are invested in schemes which are highly unlikely to be making any improvements to their offering, while the service being provided may be relatively poor and in addition, the older and smaller pots face the highest charges.
FCA statistics also show that many people have benefits in older, less flexible, more expensive individual arrangements. Consolidating their pots into one modern pension contract which may be cheaper and more flexible is likely to be a good idea for many, but there are some situations where remaining in the older pension remains appropriate.
So should you consolidate your pension pots or not? Here are some pros and cons to consider:
- Simplicity- All your monies will be administered by one provider.
- Lower charges – Charges are often lower the more monies that are invested.
- Better service – A more modern approach to customer service, with client portals with 24/7 access to manage your portfolio.
- More flexibility – More ways to invest and withdraw your money.
- Wider investment options – A larger choice of funds and features such as automatic rebalancing.
- Access features not available in the wider scheme- Flexi-access drawdown, pension lump sum or phased payment of tax-free cash.
- Exit Penalties – There may be exit penalties to transfer out of your old scheme, although the FCA advises that these are relatively rare with 84% of personal pensions having no exit penalties.
- Guaranteed Annuity Rates – Another issue to consider is guaranteed annuity rates. If a scheme offers a guaranteed annuity rate (GAR ) of, for example, 10%, that’s around twice the current annuity rate for a healthy person. The downside to a GAR is the need to buy an annuity which may not suit your needs and the annuity often needs to start on a set date such as your 65th birthday and be paid on a set basis. Keeping a GAR may not be suitable therefore for all people. However, it can be a hugely valuable benefit so one shouldn’t be given up without careful consideration. Despite that, the most recent FCA figures show around three in five over 55s are not accepting the GAR within their contract. Two-thirds of these people are instead taking the benefits wholly as cash.
- Protected Tax-Free Cash – If you have built up benefits before 2006 you may be entitled to a tax-free cash sum above the normal 25%. In general, the higher tax-free cash will be lost if you transfer.
Before you make any decision to consolidate your pension pots, it is imperative that you seek independent financial advice to ensure that it is prudent to do so. BlackBear Financial Group Ltd offer independent, unbiased advice tailored to your circumstances
Call us today on 0151 305 2305 or email us firstname.lastname@example.org.
Adapted from original article by Andrew Tully, www.MoneyMarketing.co.uk 29/08/2019