What Are the Pros and Cons of Pension Consolidation?

Have you got several pension plans from various employers?

If you struggle to keep track of all your pension pots, could merging pension funds be the answer? Hilltop explores the benefits of consolidating pensions, as well as the downsides, to help you decide.

What Does It Mean To Consolidate My Pensions?

The average British worker is forecast to change jobs 12 times in their lifetime. If you’re one of them, that’s a lot of different pension plans to keep track of.

Consolidating pension plans is a way of transferring multiple pension plans to a single pension provider.

Merging pension funds can be extremely beneficial for some people but won’t suit everyone, which is why seeking financial advice is crucial to ensure you make the right call.

Are There Any Benefits To Merging My Pensions Into One?

Consolidating pension plans enables you to keep better track of your money, with a view to ensuring your retirement planning is on target. Having one single overview of your pension can make it easier to manage.

Let’s take a closer look at some of the pros and cons of consolidating your pensions.

What Are The Pros Of Pension Consolidation?

There are some definite advantages to merging pension funds. Here are some of the main benefits of consolidating pensions if you’re considering putting pensions together:

Clear overview of your savings – One of the main benefits of consolidating pensions is that it allows you to quickly and easily see how much money you’ve built up and track your contributions.

  • Track the performance of investments – Another advantage of consolidating pension plans is that it can make it easier to check the performance of your investments and identify any drop-offs quickly.
  • Forecast your retirement income – Another plus of putting pensions together is that you can gain a much clearer understanding of your projected retirement income and, can help to identify potential shortfalls.
  • Ease for withdrawing funds during retirement – With all your funds in one place, it would make it easier to withdraw funds in retirement, rather than having to contact several providers to get your money.
  • Less paperwork – with only getting updates from one provider, you’ll reduce the amount of documents you receive, meaning better for the environment, better for your time management, and less chance of losing track of your funds.

What Are The Cons Of Pension Consolidation?

There are some drawbacks to consolidating pension plans to bear in mind, which may mean pension consolidation isn’t for you. The following are some of the main cons of merging pension funds:

You might lose some benefits – Some types of defined contribution pensions allow you to take out more tax-free funds than usual, while others offer guaranteed annuity rates that are better than the market rates.

  • Cheaper pensions might not be the right pension – Consolidating into the cheapest pension, might not be the best option for you. An independent pension adviser will assess what you are looking for in a pension and retirement and recommend a mixture of cheap and good growth pensions.
  • You might lose some benefits – Some types of defined contribution pensions allow you to take out more tax-free funds than usual, while others offer guaranteed annuity rates that are better than the market rates.
  • You could face an extra tax bill – When consolidating pension plans, you must transfer to a pension scheme registered in the UK or a qualifying recognised overseas pension scheme or else face a hefty tax bill.

How Many Pension Pots Can You Cash In All Together?

In theory, you can have as many pension pots as your career dictates. With mandatory auto-enrolment pensions now in place, many British workers will have multiple pensions by the time they come to retire.

As long as the sum total of all your pension funds don’t exceed the lifetime allowance (set at £1,073,100 until 2025/26), you won’t pay tax on your cumulative pension funds.

Provided your pension funds permit a transfer, there is no upper limit to how many pension pots you can combine.

When I Retire, Is It Better To Have All My Pensions In One Place?

Merging pension funds can certainly make life easier if you’re undertaking retirement planning with the help of a regulated financial adviser.

One of the benefits of consolidating pensions is that you can consolidate your savings to increase the value of your pension pot. This enables you and your adviser to implement an effective income drawdown plan to suit your lifestyle.

Our financial advisers can support your retirement planning at every step.

What Happens If I Have Different Types Of Pensions, Can They Still Be Combined?

Not all types of pensions can be combined. As we’ve mentioned, most defined contribution pensions can be consolidated. Some public sector defined benefit pensions cannot be consolidated.

So-called ‘unfunded’ public sector funds – which are paid by the taxpayer and are given to public service teachers, NHS workers, the police, firefighters and the armed forces – cannot be transferred to a defined contribution pension.

This is to protect the generous income public sector workers are guaranteed with this type of pension.

If you have what’s known as a ‘funded’ defined benefit pension, such as a private scheme or a Local Government Pension Scheme, you may be able to transfer this type of pension.

However, the value of your pension may be less than what you would have received had you remained in the original defined benefit scheme.

For that reason, it is essential to speak with an independent financial adviser to understand the risks of merging pension funds.

How To Get Independent Pension Consolidation Advice?

Speak to a Hilltop pension adviser to ensure you’re pension is the working hard and suitable for your needs. We will quickly assess your current pensions and offer impartial advice about the most appropriate options for you.

The advice we give is always in your best financial interests. That means we can take some of the decision-making burden from you and guide you to a more suitable pension, rather than a fit for all pension you may see online.

Pension Advisors

Even the most casual observer can see that there are definite benefits of consolidating pensions. However, merging pension funds does come with some downsides too.

It isn’t a one-size-fits-all solution. Financial decisions rarely are. And for that reason, we always recommend speaking with one of our regulated financial advisers before you combine your pensions to ensure it’s the right course of action for you and your circumstances. It might not be, but if it is, we can provide you with suitable options.

If you’d like to speak to an adviser about combining your pensions, please contact us on 0161 413 7051 for the assessment process.

We’re open 9am to 5pm Monday to Thursday and 9am to 4pm on Fridays. Hilltop Financial Planning is a trading style of Hilltop Finance Limited. Hilltop Finance is authorised and regulated by the financial conduct authority, under no. 787803.

Our advisers have over 100 years of combined experience and knowledge of working with people like you and helping them to make the most of their finances.

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Even after you’ve done your research, you’ll probably still have some questions. Why not give one of our friendly team a call and explore whether financial planning advice might be right for you.

Call now on 0161 413 7051
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Important information: Our website offers information about investing and saving, but not personal advice. If you’re not sure which services are right for you, please request advice from Hilltop’s financial advisers. Remember that investments can go up and down in value, so you could get back less than you put in.

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