Pension Pot Consolidation

Sloppy_Saver · 13 February 2007 at 5:58PM

Hi,

I have just started my own company and intend setting up a stakeholder pension where I intend paying £300 per month (gross). This is the most I can put in without proving my earnings.

I left my previous employer just short of two years so they have told me they can either refund my money purchase pension or I can move it to a personal pension. I intend moving this to my stakeholder and have asked for a transfer value (it's worth approx. 11k).

I also have another deferred money purchase pension with a previous company (approx value 60k), and was thinking of also transferring this into my stakeholder to make a combined pot of 71k.

I orginally intended leaving the larger pot where it was as it is in an L&G fund with a large bluechip employer. My strategy was to build up two seperate pots so that I had the choice to purchase an annuity with one and to do a pension drawdown with the other. The other reason for having two pots was to half the risk if one or the other went belly up.

My question is should I continue with my "two pots" strategy or is it better to consolidate the two in an active fund?

Any help appreciated!!

EdInvestor · 13 February 2007 at 6:19PM

Sloppy_Saver wrote:

I orginally intended leaving the larger pot where it was as it is in an L&G fund with a large bluechip employer. My strategy was to build up two seperate pots so that I had the choice to purchase an annuity with one and to do a pension drawdown with the other. The other reason for having two pots was to half the risk if one or the other went belly up.

Investment risk is far more likely to bite you on the bum than provider risk. If you are thinking of taking drawdown with one of the pots then you might as well move it to a low cost online SIPP now, as the likely investment returns will probably be better.

You can't yet move protected rights to a SIPP, so if there is any PR money in the pensions, that might be the way to construct your two pots.PR money in the stakeholder, non PR money in the SIPP.

Sloppy_Saver · 14 February 2007 at 9:55AM

Thanks for the advice - That's a great idea. The 60k pot has protected rights so it could go into the stakeholder, with the 11k from my more recent pension going into a SIPP. This means that the bulk of my current pension savings (that have taken me ages to accumulate) are pretty safe and will hopefully make a decent return, while I can dabble with the SIPP and if I make a hash of it, at least I won't be destitute. I'm 38 at the mo, so have time to build up both pots to a decent level (and to learn how to play the stockmarket).

I will be investing in a Standard Life stakeholder (via Cavendish Online to grab back the commission) and Hargreaves Lansdown Vantage Sipp (due to lower investment charges). Unless anyone knows any better?

As I am an I.T. contractor working outside IR35, I'm not sure how I stand with pension contributions - hence the £300 investment in a stakeholder. Would it still be cost effective to make a (gross) £100 monthly payment into the stakeholder and £200 into the SIPP?

EdInvestor · 14 February 2007 at 10:16AM

This means that the bulk of my current pension savings (that have taken me ages to accumulate) are pretty safe and will hopefully make a decent return, while I can dabble with the SIPP

The safety or not of your pensions doesn't depend on whether they are in a SIPP or a stakeholder.It depends on what the money is invested in.You can invest all the money in your SIPP in cash if you like. You could invest both pensions in the same funds.The SIPP does allow you to invest in shares and investment trusts.This may or may not be more risky, it depends which ITs/shares you choose.

Re charges, stakeholders normally charge a flat annual fee which includes the cost of regular contributions and HL also offer this if you are investing in funds.A different charging structure applies if you are investing in shares.HL is not IMHO the SIPP provider of choice if this is what you want to do.

dunstonh · 14 February 2007 at 10:53AM

I will be investing in a Standard Life stakeholder (via Cavendish Online to grab back the commission) and Hargreaves Lansdown Vantage Sipp (due to lower investment charges). Unless anyone knows any better?

SL stakeholder pays no initial commission so you will get no rebate. To invest the PR in a stakeholder and the OR in a SIPP isnt logical either. If you have the investment knowledge to make use of the options available within a SIPP, you wouldnt go near a stakeholder.

Sloppy_Saver · 14 February 2007 at 1:46PM

Even more confused than when I started!

I guess the main question I was originally asking was "is there any real value in having more than one pension pot, or it should I just combine the two into a single product (whether stakeholder, SIPP or back into a company pension if I ever go back to being an employee)".

jamesd · 15 February 2007 at 9:08AM

There is no value in having more than two pension pots, one for protected rights, one for the rest.

EdInvestor · 15 February 2007 at 9:21AM

One point that needs making though it doesn't apply to the OP, is that it can be a big mistake to consolidate pensions in one or two pots, without first checking if they have any guarantees attached to them, or special entitlements to extra tax free cash.

These guarantees and TFC perks can be valuable and it's easy to lose them by moving to a new pension.They cost the companies a lot of money, so they tend not to tell you that moving the fund would be a big mistake (from your point of view) :cool:

This mainly applies to older pensions from the eighties, pensions invested in With profits funds and any pensions which started life at a company scheme.
Inspect them carefully before moving.

Sloppy_Saver · 15 February 2007 at 11:35AM

EdInvestor wrote:

One point that needs making though it doesn't apply to the OP, is that it can be a big mistake to consolidate pensions in one or two pots, without first checking if they have any guarantees attached to them, or special entitlements to extra tax free cash.

These guarantees and TFC perks can be valuable and it's easy to lose them by moving to a new pension.They cost the companies a lot of money, so they tend not to tell you that moving the fund would be a big mistake (from your point of view) :cool:

This mainly applies to older pensions from the eighties, pensions invested in With profits funds and any pensions which started life at a company scheme.
Inspect them carefully before moving.

Thanks Ed. I'll check with the deferred pension (the 60k one) provider just what additional benefits I get by staying there. I only started it in 2001, so won't have any historical benefits. With the other pension (I have now received my transfer amount and it's 12.5k, not 11k - a nice surprise) I have to move this one as my former company is insisting that because I was employed by them for less than 2 years, it has to go. At least they're letting me take it away, prior to A day I think they would have cashed it in...

While I may leave the larger pension where it is for the short term, I do need to decide where the 12.5k is going. I fancy taking more of an involvement in its investment and so probably a SIPP is the best bet. Just hate the thought of paying charges on my hard earned cash, hence I started looking at the HL Vantage SIPP as it seems to have lower charges.

Sloppy_Saver · 15 February 2007 at 11:40AM

One other question. If I decide to move the larger pension away from the current provider, Can I split it so that just the protected rights part of the pension (say 2k) can go into a stakeholder and the remaining 58k can go into the SIPP with it's 12k brother?

Bestthingsinlifearefree · 16 February 2007 at 3:33PM

My advice would be to stop the pension contributions and pay of your mortgage first.

Pension Pot Consolidation

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