A "job for life" may be considered an outdated concept as the modern workforce adapts to more flexible working, with employees working and living longer, and taking a more proactive approach to jobs they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 accumulated a few workplace pension pots along the way.
Is your Workplace Pension up to date?
A paper published by the FCA showed that 89% of individual personal pension plans are in schemes which are closed to new business. This means that approximately eight million accounts collectively worth £250bn are invested in schemes that are unlikely to make improvements to their offerings, with the service provided being relatively poor.
These older and smaller pots also often face the highest charges.
FCA statistics also show that many people have pensions in older, less flexible, and more expensive individual arrangements.
Consolidating their pots into one modern pension contract, which may be cheaper and more flexible, can be a good idea for many.
However, there are some situations where remaining in an older pension scheme remains appropriate.
Could you consider consolidating your pensions?
Here's why you might consider consolidating multiple pensions:
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 providing 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.
Here's what you must be aware of:
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 (GAR). If a scheme offers a 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 for everyone. However, it can be a hugely valuable benefit and should not be given up without careful consideration. Despite this, 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.
You may want to take advantage of small pots: Under the current rules, and only when an individual has reached minimum pension access age, it is possible to take benefits from up to 3 money purchase pension pots that are less than £10,000 each without affecting how much tax relief you receive on pension contributions. The first 25% of these small pots is paid tax-free whilst the rest is taxed at the policyholder's marginal rate. If you consolidate all of your pension pots, you may lose the freedom to withdraw any policies under small pots rules. A financial adviser will be able to help answer any questions you have on this.
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 offers independent, unbiased advice tailored to your circumstances.
Adapted from the original article by Andrew Tully, www.moneymarketing.co.uk, 29/08/2019
Commentaires