Retiring early with four pension pots - advice please

LesE_2

My employer has recently started a new salary sacrifice scheme and wound up the old scheme and I am not sure what best to do with the existing funds. Additionally I intend to retire in August 2010 at age 62 rather than wait until 65 which is when the schemes assume I will retire.

I now have four pension 'pots' -

1. My current 'salary sacrifice' scheme with Aegon/Scottish Equitable which by 2010 should have £7110 (plus growth)

2. My old current employer's scheme which is £21,520 (of which £7850 is Protected Rights)

3. A Transplan/Friends Provident fund from the early 1970's which has £10,020 at present

4. A small fund with Clerical Medical totaling £1250

All of these assume a retirement at 65 with the exception of the Clerical Medical one which matures in 2010.

The biggest of these funds is the wound-up scheme (2 above) which states that I can either leave the fund as it is until 'Normal Retirement', or transfer it to 'a suitable Insurance Policy in your own name, a Personal Pension Arrangement or the pension scheme of your new employer'.

What I would like advice on is -

1. Should I consolidate these schemes in any way? Perhaps transfer to Aegon or just leave them as they are with just 21 months to go before I retire?

2. Do I need to tell any of these providers now that I intend to retire early? (although I don't want my employer to know just yet).

Any advice greatly appreciated - I am not au fait with any of this pensions lark!

EdInvestor

Are any of these schemes invested in insurers With profits funds?If so you need to check for any Guaranteed Annuity rates which can be valuable before doing any transferring.Also check for any transfer penalties.

In theory it would be better to amalgamate the smaller ones as you will get a better annuity deal with a bigger fund (assuming an annuity is what you plan to buy.

Have a look at the Pension Annuities section of this site for an idea of what annuity income you might get;

https://www.fsa.gov.uk/tables

You can take retirement from these schemes at any age after 50 at the moment, but beware of losing valuage GARs or suffering transfer penalties. You don't need to tell them until you decide when to go.

Do you have other income to cover the gap before your state pension kicks in? You should be able to take 25% in tax free cash lump sums from all the plans.

Get a state pension forecast here if you need one:

https://www.thepensionservice.gov.uk

LesE_2

EdInvestor wrote: »

In theory it would be better to amalgamate the smaller ones as you will get a better annuity deal with a bigger fund (assuming an annuity is what you plan to buy.

I had assumed that that I could lump all these together when I retire to give an overall pot of around £40,000 to purchase an annuity. Is that right? Or do they each have to go towards their own annuities?

I don't intend to draw any tax-free cash. We will be selling the house and moving to a cheaper part of the country to rent somewhere until my state pension kicks in (my wife is already getting hers). With no mortgage to pay and the investment on the house sale until we buy somewhere else we will actually be better off than we are now by working!

Thanks for the annuity table link.

EdInvestor

LesE wrote: »

I had assumed that that I could lump all these together when I retire to give an overall pot of around £40,000 to purchase an annuity. Is that right? Or do they each have to go towards their own annuities?

The protected rights may need to be kept separate.And as above if the funds have GARs you will get more money by not amalgamating.You need to look into this in more detail possibly with an IFA's help..

Tighthead

You should be able to combine the funds together at retirement and buy one annuity. It's probably inadvisable to consolidate them together now, when you have such a short time to go until retirement (not enough time to recover any charges etc). As EdInvestor says, be aware of GARs. You would lose a GAR of you transferred away, and you wouldn't be able to transfer funds into a plan with a GAR.

No, you don't need to tell the providers that you want to retire sooner, but I would start to contact them at least a couple of months beforehand to get the paperwork together. You might want to consider your fund selection though in the run-up to retirement, and and also find out if there are charges for taking benefits early.

I would seriously consider taking the tax-free cash. The annuity will be taxed as earned income (as will your State Pension). You could invest the tax free cash in an ISA, for example, and draw tax-free income, or an alternative investment to reduce your tax liability, or even in a Purchased Life Annuity; essentially the same as your pension annuity, but the tax is lower because some of the 'income' is treated as a return of your original capital.

Speaking to an IFA would be useful, not least to explain the pros/cons of taking the lump sum, and also the different annuity bases and provider options.

Good luck.

dunstonh

I had assumed that that I could lump all these together when I retire to give an overall pot of around £40,000 to purchase an annuity. Is that right?

Yes. You can do that under transfer (not open market option).

I don't intend to draw any tax-free cash.

That is probably a bad move. A purchased life annuity for the 25% pension commencement lump sum is possibly a better option than a lifetime annuity for the lot. Although it would need to be costed.

Thanks for the annuity table link.

The FSA tables are notoriously unreliable. Ok for a guide but dont rely on them.

TMFTP

The FSA tables are also now incomplete as companies move to postcode pricing (NU and Prudential missing from tables, L&G shown as their base rate is a guaranteed minimum, although you may get more than shown) - FSA currently working on how to improve this.

dunstonh

FSA currently working on how to improve this.

I dont think they will be able to do much about it. You also get discounts with the bigger networks as well as the things you have mentioned. The FSA tables are likely to remain a reference point for basic information only on annuities as much as they are for other areas.