Is it Worth Combining your Old Pension Plans into One?

Most of us want to want to simplify our life admin and this includes old pension plans. We’ve got better things to do with our valuable time. I’ve yet to come across someone who enjoys having pension plans with five different providers.

But should you combine all your old pension funds into one plan?

A Cautionary Note: I’m not talking here about employer defined benefit pension schemes or final salary pension schemes. That is a more complicated process and one that needs expert advice.

Combining your old pension funds means you can keep track of what you’ve got. And you can have your own investment strategy rather than the one given to you.

Of course, first you have to find the different pension plans first. If you’ve got some old paperwork that’s a start. Providers have to send out yearly statements but you might have changed your address and not told them.

You can also use the Pension Tracing Service, set up by the government to help people find lost pensions. Apparently that’s estimated at nearly £20 billion!

When you’ve got some information, here are 5 questions to ask:

1. Are there any exit penalties in my old pension plan?

For older plans in particular, there could be a charge on the current value of the fund if you transfer. This might make the decision more difficult. But bear in mind that the provider is only clawing back charges that you’ll pay anyway. So consider this as part of the whole review.

2. Will I lose any benefits or features?

Many older plans don’t offer the choice and freedown to take flexi-access income drawdown, introduced in 2015. Look out for old plans that only return contributions in the event of death, rather than the current value of the fund.

However those older plans might offer features such as higher tax free cash and guaranteed annuity rates (GAR). A GAR means that you get more secure income for your money. If your pension offers these you should definitely consider the pros and cons before making a decision to transfer.

3. What are the plan charges?

Older plans are generally more expensive. If your fund value is small, fixed policy charges quickly erode the value.  A good rule of thumb is you don’t want to pay more than 1% of the fund value.

The government’s Pension Advisory Service website has some more information on pension scheme charges. I’ve put the link at the bottom of this article.

4. How is my pension fund invested?

Combining your pension funds can give you more choice of investments particularly if you use an online platform.

  • Are the funds you’re invested in suitable for how you feel about risk/reward and your timescale?
  • What’s the asset mix? This is how much is in cash, shares, government securities etc.
  • How much of your total fund is invested in the ‘riskier’ areas such as UK and overseas equities, or property?
  • Compare this to the more ‘cautious’ areas of cash, fixed income or bonds. Note that unless you’re invested 100% in cash both ‘risky’ and ‘cautious’ carry a risk of loss.
  • How do you feel about the investment risk you’re taking? For example, people who consider themselves yourself ‘average’ risk takers usually prefer 50/50 between riskier and cautious assets.
  • What’s the  past performance of the funds? What is the % return over the last 12 months and longer? It’s not an indication of what will happen in the future, but find out how the short and long term returns compare to other similar funds.

5. What’s the admin and service like?

There is nothing worse than a provider you can’t get hold of or doesn’t reply. We are finding some of the big providers are failing to provide information quickly enough, especially for older plans.

We think a 30 day turnaround for a valuation is rubbish. How good is your provider?

What’s next?

If you decide to transfer your pension it’s pretty straightforward. A good pension platform that deals directly with the public will be happy to deal with the process for you.

And if you want professional advice (Naturally I’d recommend you consider it) your financial adviser will sort it out for you, for an agreed fee.

More Reading:

Why should I pay a financial adviser?

Links Mentioned


Photo Credit: Christian Wiediger on Unsplash

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Risk Warnings

This article and the information on this website is not personal advice. It’s only intended to give you a brief summary or highlight a particular issue for you to investigate further. It is based on our current understanding of legislation and HMRC guidance which can change and is correct as of the date of the post.

If you’re in any doubt whether a particular course of action is suitable for your circumstances, you should seek professional advice. Tax rules can change and any benefits depend on individual circumstances. And, if you are unsure any reliefs are applicable to you, you should consult your accountant or HMRC.

The value of investments and any income from them can fall as well as rise, so you could get back less that you put in. Past performance is not a guide to the future. It cannot provide a guarantee of the future returns of a fund.

More information