Martin Lewis offers advice on consolidating pensions
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Martin Lewis addressed pension consolidation in his most recent Money Show episode. In the modern working world it is common for workers to build up several pensions as they move between jobs and this could increase the chances of savings going missing or costs being raised.
The Money Saving Expert addressed this directly as Linda wrote in to ask Martin for pension advice.
A woman named Linda wrote in and detailed she had four work pensions with different employers which she’d like to consolidate.
Linda asked Martin if she should consolidate her pensions and what would be the best way to do so.
To answer this, Martin turned to David Breaithwaite, a Financial Planner for Citrus Financial who was a special guest on the show.
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David had the following advice: “She can indeed consolidate them if she wants to do, what she’s got to be careful of is losing out on something that she might have hardwired into those existing contracts.
“Once you move them you can’t [get them back].”
David went on to list examples of some of these beneficial perks: “So guarantee annuity rates might be good on there, she might have higher than 25 percent tax free cash.
“So you have to be really, really careful.
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“Compare all what she’s got, the charges, the fees, look at the costs and decide what she actually wants to do but just be careful before you move them.”
According to the Money Advice Service, there are a number of advantages in consolidating pension pots, which includes:
- Keeping on top of and managing pension savings more easily
- The potential for saving money if a high-cost scheme is transferred to a lower-cost one
- Potentially opening up a greater choice of investments if one is consolidating pension pots into one flexible scheme
However, on the flipside of this,they also warn of the following potential downsides to watch out for:
- In general it is a bad idea to transfer out of a defined benefit pension scheme – the guaranteed retirement income they offer shields savers from investment risk
- If any of ones existing pension schemes offers Guaranteed Annuity Rates, then savers should consider the implications carefully before transferring out – if they’re planning on buying an annuity with a pension pot these guarantees are valuable
- Check whether they’ll be charged by any of the pension providers for transferring money out of their schemes
Martin concluded on this topic by noting independent pensions advisors can help with consolidation matters.
The Pension Advisory Service notes accepting pension providers may insist that savers should get prior regulated financial advice before moving any assets.
For those looking to transfer a private sector (funded) defined benefit pension scheme or a funded public sector defined benefit pension scheme into a defined contribution pension scheme, they will need to take financial advice if the value of the benefits are above £30,000.
The reason for this is to ensure valuable perks are not lost and impartial guidance on all pension matters can be sought from the like of Pension Wise and Citizens Advice.
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