old pensions pots - best plans for future?

runningout

Hello Money Savers,


I'm changing jobs and it has got me thinking hard about pensions etc. for the first time really . I should probably see an IFA but would be grateful for any thoughts on here in the meantime. I've got two questions to Ask The Audience:


1) I have two old pensions pots from a past employer. One of them is a closed Money Purchase scheme with £30k in, administered by Capita and invested in L&G global equity fund. The other is a fund managed by BlackRock with £20k in. I will shortly be starting with a new employer and joining their scheme to take advantage of their 5% contributions. Questions - what are the pros and cons of keeping three separate pension pots or transferring and consolidating into one pot with my new employer's provider? And is it best to transfer a closed scheme pot because probably no one really cares about it any more, it only has 300 members?! How should I decide?


2) I will have a bit more disposable income with my new job and plan to try not to fritter it away..... I am trying to decide whether it would be better spent increasing mortgage payments, or increasing pension contributions, or putting in an ISA or something else. Any ideas how to decide?


I am 39 with 2 small kids and a husband who has only modest pension provision. The mortgage is a base rate tracker currently on 2% variable with £84k outstanding. I will be just over the threshold for HR income tax.


I'll be really grateful for any thoughts / tips. Thanks so much.

dunstonh

what are the pros and cons of keeping three separate pension pots or transferring and consolidating into one pot with my new employer's provider?

Some money purchase occupational pensions have special terms on them. So, you would first need to identify what the terms and features are. You would then need to compare those to alternatives.

It is an exercise of comparing things between the two.

And is it best to transfer a closed scheme pot because probably no one really cares about it any more, it only has 300 members?!

Unit linked funds do not work that way.

2) I will have a bit more disposable income with my new job and plan to try not to fritter it away..... I am trying to decide whether it would be better spent increasing mortgage payments, or increasing pension contributions, or putting in an ISA or something else. Any ideas how to decide?

Similar answer to above in that you need to compare the options. You have multiple financial needs. One of which is to provide an income in retirement. Will paying off the mortgage quicker help you with that need? How much is the interest rate on your mortgage? how much liquid savings do you have now? what tax rate do you pay? do you receive working/childrens tax credits (or would you if your income was a bit lower)?

Some of those things you mention. Your mortgage, for example is 2%. Bog standard default funds for pensions have exceeded 5% a year for over decade (so that includes through the credit crunch). Returns are always unknown but you would expect investments to exceed 2%. Plus, with 40% tax relief on (some of) the contribution, it would be hard for alternatives to beat that.

atush

2, what interest rate do you pay? at 2% generally better to invest the money as the long term rate for markets is above this. Either pension or S&Sisa depending on your current savings and investments.

1, the pros are you could reduce costs and get access to a larger range of investments, cons are you could lose guarantees like GARs and transferring takes some time and effort (unless you trnasfer into new work pension).

I would consider upping hubby's pension contribs if you are already out of HRT with your contribs? You will each have a PA in retirement, and at this time can only share Ik of it.

Your_Hero

runningout wrote: »

Hello Money Savers,

I'm changing jobs and it has got me thinking hard about pensions etc. for the first time really . I should probably see an IFA but would be grateful for any thoughts on here in the meantime. I've got two questions to Ask The Audience:

1) I have two old pensions pots from a past employer. One of them is a closed Money Purchase scheme with £30k in, administered by Capita and invested in L&G global equity fund. The other is a fund managed by BlackRock with £20k in. I will shortly be starting with a new employer and joining their scheme to take advantage of their 5% contributions. Questions - what are the pros and cons of keeping three separate pension pots or transferring and consolidating into one pot with my new employer's provider? And is it best to transfer a closed scheme pot because probably no one really cares about it any more, it only has 300 members?! How should I decide?

Old schemes tend to be poor value for money. If you compared like for like, you could have those same investments (eg. L&G global equity fund) for cheaper as well as other charges being less. But charges aren't everything and other things you (or your IFA) would need to consider are guarantees, tax free cash, etc.

Consolidation also makes it easier to keep track of your pension pots and be in full control of it.

2) I will have a bit more disposable income with my new job and plan to try not to fritter it away..... I am trying to decide whether it would be better spent increasing mortgage payments, or increasing pension contributions, or putting in an ISA or something else. Any ideas how to decide?

I am 39 with 2 small kids and a husband who has only modest pension provision. The mortgage is a base rate tracker currently on 2% variable with £84k outstanding. I will be just over the threshold for HR income tax.

It depends what your objective is. If you need to save money for school fees, then you wouldn't be ploughing your extra disposable income into pensions or your mortgage.

If you want to maintain flexibility in savings, then ISAs are probably the way to go. If subsequently you find you don't need this money to pay for school fees anymore, then you can use this as a lump sum payment into your pension or clearing off part of your mortgage.

Don't forget to claim back an extra 20% of your pension contributions as a HRT via your tax returns.