Moving your pension

Bringing your money under one roof

Many of us may have two or three careers during our working lives, and that could mean we head into retirement with a number of different pensions, both workplace and personal. This has the advantage of diversification and of spreading our investment risk. But there may also be downsides, particularly in terms of converting these retirement funds into an annuity.

The most obvious reason for moving a pension is to achieve hopefully better investment performance and lower charges to boost retirement income. However, the disadvantage of consolidating your pension funds is that you may have penalties imposed by insurers for moving your money. In such instances, you need to think very carefully before combining.

Pensions taken out ten or so years ago could also be subject to exit penalties of as high as 15 per cent. And if you are close to retirement you might not have time to recoup the costs, even if you do move to a better-performing fund.

You might well have several different types of pension. The gold standard is the final-salary scheme, which pays a pension based on your salary when you leave your job and your years of service. Final salary schemes, which offer guaranteed benefits to members, have been facing pressure from falling stock markets, falling interest rates and growing life expectancy. If you have any past or current contributions in a final-salary scheme, and are concerned about the security of the scheme, it is essential that you receive professional advice before moving your money.

Your past employer might try to encourage you to move your pension away by boosting your fund with an ‘enhanced’ transfer value and even a cash lump sum.

This may still not compensate for the benefits you are giving up, and you may need an exceptionally high rate of investment return on the funds you are given to match what you would get if you stayed in the final-salary scheme.

If you’ve got any other kind of pension, a money purchase occupational scheme or a personal pension, you can consider bringing all your past pensions into one place. These pensions rely on contributions and investment growth to build up a fund. When you retire, this money can be used to buy an annuity which pays an annual income or you can take out an unsecured pension but this is dependant on your circumstances.

It can often make sense to bring these pensions under one roof, as you may benefit from lower charges and you might be able to boost performance. A key advantage of moving your funds into one pension pot is the ability to monitor fund performance more easily, however a full review of your circumstances including your attitude to risk and existing policies should be carried out prior to any decisions being made.

The value of investments and the income from them can go down as well as up and you may not get back your original investment. Past performance is not an indication to future performance. Thresholds, percentage rates and tax legislation may change in subsequent finance acts.