Merging pensions

onlyroz

I currently have four pensions ranging in value from £2k to around £15k that I have accumulated over the years. One of my old pensions is winding down and I received a letter saying that I need to invest it somewhere else. This promoted me to think that I should be tidying things up and merging my pensions. So I think my options are:

- Keep the pensions where they are apart from the one that I have to move
- Merge them all into my current occupational pension (with Aegon, I think)
- Put the three "old" pensions into a SIPP that I manage myself (although I have no idea which one - would Fidelity be a good choice, and how would I choose a fund?)

Any thoughts?

kidmugsy

How old Roz?

Above or below £2k?

FatherAbraham

onlyroz wrote: »

I currently have four pensions ranging in value from £2k to around £15k that I have accumulated over the years. One of my old pensions is winding down and I received a letter saying that I need to invest it somewhere else. This promoted me to think that I should be tidying things up and merging my pensions. So I think my options are:

- Keep the pensions where they are apart from the one that I have to move
- Merge them all into my current occupational pension (with Aegon, I think)
- Put the three "old" pensions into a SIPP that I manage myself (although I have no idea which one - would Fidelity be a good choice, and how would I choose a fund?)

Any thoughts?

For each pension arrangement you have, you need to know whether it's a defined-benefit or a defined-contribution scheme.

Defined-benefit schemes are sometimes called "final-salary" schemes, although not all defined-benefit schemes use final salary to calculate benefits. These are the schemes where each period of membership buys you entitlement to specified income in retirement.

Defined-contribution schemes are sometimes called "money-purchase" schemes. These are the ones where you just have an investment account which is tax-deferred, and all the contributions made accumulate to give a financial value which can be used to buy a retirement-income source on retirement.

Crudely speaking, DC schemes are "easy" to move and merge, relative to DB schemes. For simple DC schemes, you just compare costs, and maybe investment choices available. However, some (older?) DC schemes may also have other complications, like guaranteed annuity rates, exit fees or market-value-adjustments, or life-insurance.

Defined-benefit schemes are far more difficult to move (some exceptions are those in the public-sector "club"), because pension providers and advisers don't want to be held liable for having done a transfer which damaged your interests.

If the scheme which is closing is a DB scheme, you might need to pay for expensive advice to move it somewhere (because the recipient fund may demand to see that you've received advice before accepting it). This is unfortunate.

The kind of pension arrangements you have is more important than how much value is in each. Knowing details about the schemes will help people here to help you explore the possibilities (which may include telling you that you need to buy personalized advice from an independent financial advisor).

Warmest regards,
FA

onlyroz

I am nearly 34. The first pension is around £2-3k from a job I had for only 6 months. The second is around £15-16k and this is the one that is "winding down" and I have to find a new home for. The third is around £5k - it relates to my current employer but is for an old scheme they had when I first joined the company. My current company pension is probably also around £5k. I'm paying in 5% and the company pays in an additional 3%. I think I am just about in the higher rate tax bracket, if that makes any difference.

onlyroz

The scheme which is closing was definitely described as "money purchase". The letter I received said that I could either reinvest it with Scottish Widows or move it wherever else I pleased - and provided me with some transfer forms. For the others I am not sure but I doubt they would be final salary because I thought it was only the public sector that gave those sorts of pensions.

onlyroz

Any more thoughts on this? I've been looking at SIPPs today, but I don't really know what I'm looking at. A google search suggests that Hargreaves Landsdown is a fairly safe bet, but again I'd have no idea which funds I should be choosing. I've got an ISA with Fidelity, and I see that they also offer SIPPs, but the choice of investments is bewildering.

Linton

Unless you want to enter the world of serious personal investing, and your comments suggest you arent ready to do this, the easiest course of action is probably to transfer the pension you have to move to your current employers pension. Your current employers pension will probably be very helpful, merging into a previous employers pension could be impossible as it could be too much hassle for too little benefit for the old pension managers to agree.

As to whether all you pensions should be merged depends on the Ts&Cs and costs of each one so would require a detailed analysis. There is no over-riding reason why a number of small pensions should be worse than one big one.

jw52

FatherAbraham wrote: »

For each pension arrangement you have, you need to know whether it's a defined-benefit or a defined-contribution scheme.

Defined-benefit schemes are sometimes called "final-salary" schemes, although not all defined-benefit schemes use final salary to calculate benefits. These are the schemes where each period of membership buys you entitlement to specified income in retirement.

Defined-contribution schemes are sometimes called "money-purchase" schemes. These are the ones where you just have an investment account which is tax-deferred, and all the contributions made accumulate to give a financial value which can be used to buy a retirement-income source on retirement.

Crudely speaking, DC schemes are "easy" to move and merge, relative to DB schemes. For simple DC schemes, you just compare costs, and maybe investment choices available. However, some (older?) DC schemes may also have other complications, like guaranteed annuity rates, exit fees or market-value-adjustments, or life-insurance.

Defined-benefit schemes are far more difficult to move (some exceptions are those in the public-sector "club"), because pension providers and advisers don't want to be held liable for having done a transfer which damaged your interests.

If the scheme which is closing is a DB scheme, you might need to pay for expensive advice to move it somewhere (because the recipient fund may demand to see that you've received advice before accepting it). This is unfortunate.

The kind of pension arrangements you have is more important than how much value is in each. Knowing details about the schemes will help people here to help you explore the possibilities (which may include telling you that you need to buy personalized advice from an independent financial advisor).

Warmest regards,
FA

I have a defined contribution scheme that SAYS its a DB scheme, because it has some weird guarantee on the fund. No link to salary, no benefits whatsoever of a DB scheme, but still they insist it is DB. Its also a piddling amount of money. So if I want to transfer it I have to pay £1k to an adviser to advise me about a non-existent risk. Is this allowed??? :mad:

dunstonh

So if I want to transfer it I have to pay £1k to an adviser to advise me about a non-existent risk. Is this allowed???

Yes it is. The default position from the regulator is that defined benefit transfers are mis-sold unless proven otherwise. So, it needs an AF3/G60 qualified adviser to determine that it is right and take on the liability for the advice to transfer.

kidmugsy

onlyroz wrote: »

One of my old pensions is winding down and I received a letter saying that I need to invest it somewhere else.

You don't know much about personal finance; neither did I at your age. So I'd say that Linton's suggestion is shrewd. Move the one you've got to move. If any of the others is particularly cheap or has some other advantage, leave be. If the others are costly, or if the costs are much of a muchness and you'd welcome the simplicity of having everything in the same place, move 'em all.

I confess that I have liked having money scattered about in different places - diversifying against who-knows-what problems. My wife, on the other hand, wants me to pull stuff together - she dreads having to run my ramshackle collection of investments. At our age, I've decided she's right. At your age, it's partly a matter of your personal inclination.

mania112

jw52 wrote: »

I have a defined contribution scheme that SAYS its a DB scheme, because it has some weird guarantee on the fund. No link to salary, no benefits whatsoever of a DB scheme, but still they insist it is DB.

Not unheard of.

Company schemes which are Money Purchase can have a GMP underpin, or some other level of protected pension.

The theory behind that being 'we don't want to have the long term pressures and expense of managing a kitty for our staff, but we'd quite like to know they will receive at least £x in retirement'

Unofficially those types of pensions are known as 'Hybrids'. The opposite is also possible, a DB scheme with a DC underpin... at retirement the greater avenue in terms of retirement income is selected.