27 September 2012

Should I ... Consolidate my Pensions?

It's easy to end up with half a dozen different pension plans over the course of a working life. Is it worth consolidating them? Here are some reasons for and against...
For ...
  • Some pensions have better investment options than others - consolidating could take advantage of those (this is probably the biggest reason to consolidate in my view)
  • Charges levied by pension plans are important - consolidating could mean getting rid of the higher charging plans (typically the older ones)
  • Your admin is easier if you don't have to deal with so many pension plan providers (for example, changes of address and dealing with the annual paperwork)
  • It's also easier to turn your pension into an income at retirement if you have fewer plans to deal with
Against ...
  • If you have any Defined Benefit ("final salary") pensions, then it is rarely worth moving those into a Defined Contribution ("money purchase") plan since you would be taking on the investment risk instead of the pension scheme
  • Some types of Defined Contribution plan have additional benefits which you would lose if you move that pension money elsewhere; that could include a guaranteed annuity rate (which will almost certainly be higher than you would get on the open market), or a higher than normal tax free lump sum entitlement (25% is the normal maximum)
  • If your pension is invested in a With Profits fund, then there may be a Market Value Reduction applied
  • You have to do some work here and now to achieve it!

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