Should I combine my pensions?

Penfold
Tuesday 21st April, 2020

Deciding on whether to transfer your old pension pots into one is a big frustration. Digging up paperwork from 30 years ago for a policy number and looking for exit fees hidden in pension providers’ 28-page-long privacy policies is not what you want to do on your weekend off.

There is no one-size-fits all approach to pension consolidation, but to take help with this difficult decision, here are 4 key points to consider when you come to think about transferring your pensions into one consolidated place.

1. Ease

Having all of your pots together means that you can easily see how much is in your pension for retirement. This way, you won’t have to hold on to different providers’ pension statement letters or log on to a series of provider portals to try to do the maths yourself. Instead, your total pensions savings are all there in one place, giving you greater visibility of how much you have and how much more you need to save. You may also avoid multiple different withdrawal fees if your other providers charge these.

2. Fees & charges

It is important to compare providers’ annual fees when deciding on whether to transfer. For example, if you were 35-years old with a £10,000 pension pot invested for 30 years until you were 65-years old, with a 7% annual investment growth performance and a 2% annual fee, your pot could be worth £44,452. If you had been with a pension provider with just a 0.75% annual fee, this same pot might be worth £64,994. This difference in fees might cost you £20,542.

Exit (transferring your pension over) and withdrawal fees are bad in general. Percentage exit fees are particularly bad for those with large pots, for example a 1% exit fee for a £100,000 pension would give a massive £1,000 exit fee. Fixed fees are particularly bad for those with smaller pots, for example a £50 fee for a £500 pot would represent a 10% reduction in the size of your pot. This is why it is worth assessing how big your pot is, how far away you are to retiring, and especially all of the hidden fees on an annual, exit and withdrawal basis.

So ask yourself the following questions:

  • How much does your current pension cost and how much will the Penfold Pension cost?
  • Will your current pension provider charge a transfer out (exit) fee?

We think it is really important to be flexible and transparent by having no other fees, except our 0.75% annual fee. This means no fees for exiting, or withdrawing your pension as an annuity, lump sum or drawdown.

3. Risk type

Unfortunately, you cannot predict nor guarantee the future performance of an investment fund, despite its past performance. As a result, there is no guarantee that transferring a pension will result in getting a higher pension value and higher income at retirement. However, it’s important to understand the objectives and strategy of the fund your old pots are invested in, the investments available by your new pension provider and whether this is appropriate for you at any particular time. 

4. Added advantages

Some pension plans have added advantages (known as guarantees) that you wouldn’t want to miss out on. For example, a final salary pension provides a guaranteed pension when you retire. Switching to a new pension means that you would be giving up that guarantee and you could potentially end up worst off, so is not usually a great idea.

Also, some pensions have a guaranteed annuity rate (the rate at which your pension is turned into an income). These are just 2 examples of some advantages available in certain pension schemes, but there are more:

  • guaranteed investment return,
  • guaranteed death benefits paid to your dependants or beneficiaries in the event of your death,
  • access to pension benefits before age 55,
  • guaranteed death benefits paid to your dependants or beneficiaries in the event of your death,
  • tax-free cash lump-sum greater than 25% of the value of your pension at retirement

This list is not extensive, and as mentioned above, if you have any advantages (guarantees) in your current pension, these will be lost by transferring to a different provider. Therefore, it is good to look at the added advantages (guarantees) that a pension scheme may have in order to make an informed decision. If you are unsure if your current pension offers any advantages (guarantees), you should contact them and check before deciding to transfer your pension! If your current pension offers any of advantages (guarantees), you should consider the potential impact of losing any guarantees before transferring a pension to a new provider.

Ultimately, it can seem like a difficult decision, as investment types and provider fees vary over the years, it is a case of doing a bit of research on your pensions around these four areas before drawing a conclusion. And if you have decided to transfer your old pensions into your Penfold pot, then great - we can manage this for you. We do this completely hassle free, and for free.

Can I change my mind if transfer my pension to Penfold?

You normally have 30 days to change your mind. However, your previous pension provider may refuse to take back your previous pension, including any guarantees that may have been applicable prior to transferring your pension. If you decide to cancel, and the value of our pension has fallen, the amount returned may be less than invested.

Please be aware of Pension Scams!

There has been a rise in pension scams, where criminals cheat people out of their pension pots.

They often begin with a cold call or an unexpected email about an investment or other business opportunity; taking you pension money before age 55, and the ways you can invest your pension money.

Once you have transferred your money into a scam it is too late and you could lose all your pension pot and face a tax bill.

So beware is someone:

  • cold calls, emails or texts you
  • says they can help you assess your pension savings before age 55
  • encourages you to take your pension in cash or a large sum and offers to invest it for you

Want to talk? Drop us an email at operations@getpenfold.com or use the online chat service on our website.

Find out more about the Penfold pension, or take a look at the broader FAQs about pensions.

Create an account with us today and start saving for your future.

With pensions, as with all investments, your capital is at risk and the value of your pension with Penfold may go up as well as down. You may get back less than you put in.

 

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