Benefits of consolidating your pensions
There are a number of advantages to consolidating your pensions, these are:
Simplification
If, like most people, you have moved jobs multiple times in your career, you may have lots of pensions scattered all over the place. Keeping track of them can be challenging and when it comes to extracting money, you’ll have multiple providers to deal with during your retirement- that doesn’t sound relaxing and often isn’t! Consolidation reduces the administrative burden associated with having to deal with multiple pension providers.
Investment performance
Do you know what your pensions are invested in? Do you know if the investment performance is good and what the current values are?
Investment strategies to optimise performance are dependent on when you need to access the money and your wider financial circumstances. Financial planners will tell you that an investment that is fantastic for a 30-year-old may be terrible for a 60-year-old and vice versa. If you don’t need the money for a long-time you can be more ambitious with your investments to get greater growth. If you are heavily reliant on the money now, you need a more cautious approach. Some pensions plans make assumptions about what you need based on age and don’t take into account anything else. An example of this is when the mix of investments automatically change as you approach retirement, but this isn’t necessarily the best approach for everyone.
Personal values
Some clients like to ensure that their investments are in some way ethical or at least doing no harm. For example, they may decide to avoid tobacco companies or those involved in animal testing. This is something that can be achieved quite simply by accessing expert advice.
Value
It goes without saying that different pensions have different fees levels associated with them and therefore the amount you are charged by the pension provider for administrating the pension varies . It can be worth looking at pensions to check they represent value for money and deal with any high cost/poor performance pensions by transferring them somewhere else.
Accessing money and taxation
Depending on the type of pension, there are various options for accessing the money. Some clients want a guaranteed income for life, others prefer to keep investing and take what they need. Each choice has implications for the amount of money that can be left for partners or children and additionally there are the tax effects to consider. Pension taxation is extremely complicated and we are unable to cover all the intricacies of pension taxation in this article. But it’s not just income tax, pensions also have a bearing on inheritance tax. If you have multiple pensions and other assets, do you know how to access the money in a tax efficient manner?
What are the risks of consolidating your pensions?
With the right planner the risk is low. The first thing to do is approach a reputable Independent Financial advice firm. Do not respond to a telephone call or email as it could be a scam. See FCA guidance on pension scams for further information. Secondly, you can also check the firms credentials on the FCA website. As an example, here is our registration.
It should go without saying that if you can’t find the firm on the FCA website then alarm bells should ring.
Finally, it’s better to use an Independent Financial Advice firm as opposed to a restricted firm. Restricted firms can only offer their own or a limited range of products and these products are unlikely to be the best performing or as cost effective when the whole marketplace is considered. Furthermore, it’s an Independent Planners duty to consider all the possibilities before making a recommendation. This means you are more likely to get a good investment through an Independent Financial Advice firm compared to a restricted firm.
How should I approach consolidating my pension?
Think about what type of advice and service you require. Do you want face to face advice? Do you need that to dovetail neatly with other types of advice? For instance, Financial Planning by TaxAssist work hand in hand with TaxAssist accountants. That’s a unique and compelling combination for many of our clients.
Once you have worked out what you need, start by contacting an Independent Financial Planner and ask for a meeting. They will then help you gather the information together from all your pensions so some analysis can be done and a recommendation can be made. They should then take care of the transfer for you.
Please be aware that it typically takes two to four months to consolidate pensions as there’s lots of paperwork involved.
How can Financial Planning by TaxAssist help you with pension consolidation?
We are an independent firm of Financial Planners and we have pension specialists that help people and particularly business owners with retirement planning and pension transfers. Our approach is as follows:
After you reach out to us, we will make contact with you to have a brief discussion at a time and date that suits you. Assuming we can help and you’d like us to, we will arrange a formal meeting with you.
At the first meeting, we will go into some detail on your financial circumstances and your life goals. We’ll get to know you and your family situation and what you’d like to happen when you ultimately pass away.
We will also ask you questions about your attitude to risk and how you like to invest your money.
All this is at no obligation and no charge to you.If you are happy to proceed, we will take responsibility for gathering the pension information from your providers.You may have some documents to hand but usually we’ll need additional information.
Once we have received all the pensions information, we will review the existing investments and plan features and consider if each of the pensions should be consolidated. It could be that some of them are very good and should not be moved. If that’s the case we will tell you that as we are duty bound to provide honest straightforward advice.
Part of this planning may include a detailed cashflow forecast to see how long your money will last during retirement taking into account a variety of scenarios including going into a care home.
Once we have completed the review, we will advise you if we think that some of the pensions should be moved and make a recommendation to you. Then, if you’d like to go ahead, we will arrange the transfer. If you don’t then there is no problem as you are under no obligation and you will not have incurred any fees.
We will also advise you on anything else that we noticed when we met you the first time as often clients have multiple questions. For example, we may highlight other considerations such as general investments , life insurance, inheritance tax planning, wills and powers of attorney.
We then arrange the transfer and provide you with online access so you can see your new combined pension pot in one place and track how it’s doing.
Finally, on an ongoing basis, we will provide annual reviews and advice to check your pensions performing as expected and that you are on-track for the retirement you desire.