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Combining Pension Pots Question

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Hi Forum

In my career I have had four jobs and four workplace pensions.

When i changed each job i chose to leave the old workplace pension in place rather than transferring it over to the new one. My reasoning was about spreading the risk and not having all your funds in the one pot (going by Equitable Life scandal I guess it's still safe to do so as long as the combined pots stay under £85k therefore protected by the Government?).

Now, i'm thinking was this the correct thing to do and perhaps i should be combining all my pension pots into one as I always was under the impression that the companies would always pay any annual administration charges and not me, but now i'm not so sure if you can give some clarification?

Also against potentially combining my pension pots is perhaps there are transfer fees and hidden early redemption (transferring out) fees which may be hidden in the small print?

To that end, although there may be some benefits to combining my pensions pots, how would these stack up compared to leaving them all in place until retirement age where i may / may not be able to receive a better payout annuity fund?

If anyone is / was like me and can give their knowledge, advice whether they made the right choice to 'stick' or 'combine' pension pots and whether they feel it paid off for them short or long term would be great to hear please?

Thanks
Michael

Comments

  • Albermarle
    Albermarle Posts: 27,739 Forumite
    10,000 Posts Seventh Anniversary Name Dropper
    Hi Forum

    In my career I have had four jobs and four workplace pensions.
    Are they all standard DC pensions ( not final salary pensions for example) ?

    When i changed each job i chose to leave the old workplace pension in place rather than transferring it over to the new one. My reasoning was about spreading the risk and not having all your funds in the one pot (going by Equitable Life scandal I guess it's still safe to do so as long as the combined pots stay under £85k therefore protected by the Government?). The risk of a mainstream pension provider or investment fund going bust is approx. zero , barring nuclear global war , or similar.

    Now, i'm thinking was this the correct thing to do and perhaps i should be combining all my pension pots into one as I always was under the impression that the companies would always pay any annual administration charges and not me, but now i'm not so sure if you can give some clarification? Normally you pay the fees , not the employer , although often they will have negotiated a low fee on your behalf ( hopefully) Usually there is a fee for the pension provider ( platform fee) and a fee for the investment funds . Sometimes it is combined . Often you do not explicitly see the fee , it is taken out of the funds automatically .

    Also against potentially combining my pension pots is perhaps there are transfer fees and hidden early redemption (transferring out) fees which may be hidden in the small print? You see these less and less nowadays and in any case they are not usually that large if they do exist.

    To that end, although there may be some benefits to combining my pensions pots, how would these stack up compared to leaving them all in place until retirement age where i may / may not be able to receive a better payout annuity fund?
    The most important issue is how the money is invested within the pension(s) . The actual provider of the pensions and how many pensions you have is less important .  So for example one combined good fund would be better than four weaker performing funds but also vice versa

    If anyone is / was like me and can give their knowledge, advice whether they made the right choice to 'stick' or 'combine' pension pots and whether they feel it paid off for them short or long term would be great to hear please?
    As above it is the performance of the funds within the pensions that matter . Everybody's experience with combining pensions and  picking the right funds will be different.
    The main reason behind combining pots is
    1) Easier to administer 
    2) Possibly lower charges for a larger combined pot , or by moving everything into the one with the lowest charges
    3) More modern pensions offer more flexibility when you come to take the pension

    For sure though there is no reason why a combined pot would perform any better than four smaller pots, apart for maybe lower charges would help a bit .


    Thanks
    Michael

    This question has been asked numerous times before , so some time searching /scrolling through the forum would be useful .
    In meantime I have responded to some of the points .
  • tacpot12
    tacpot12 Posts: 9,242 Forumite
    Ninth Anniversary 1,000 Posts Name Dropper
    edited 26 November 2020 at 4:44PM
    Often employers will subsidise the charges associated with workplace pensions, or negotiate a discount on charges based on size of their workforce. This can save money, providing they continue to subsidise or offer the discount to deferred members. In my experience most do, because its not worth their while to do otherwise. 

    So if all your previous employers are allowing to benefit from the subsidy/discount and the pensions allow you to have your funds invested in the way you want them to be invested, then leaving them where there are is a good approach. I always kept a list of where my pensions were and anything like an account number or employee number that would be useful if my executors would need to contact the pension because my estate would be due some money if I died. Such a list is very useful for you to keep track of all your pensions. 

    Of course, if all your previous pensions are all invested in one stock market, e.g. the UK stock market, then you are exposed to a different sort of risk than if you consolidated all your pensions, but divided the money across all the stock markets and across different asset classes. 

    I chose to combine my DC pensions from all employers. I'm not sure that financial the result was any better, but I certainly felt more in control. There is peace of mind in having all your 'eggs' visible in the 'one basket' that they are in. If you invest in normal funds, the assets are all held in trust anyway so there is less risk of problems if a pension provider fails as all the underlying assets are still yours. The FCA would arrange for an orderly transfer of the assets to a new provider, if your provider failed.   
    The comments I post are my personal opinion. While I try to check everything is correct before posting, I can and do make mistakes, so always try to check official information sources before relying on my posts.
  • dunstonh
    dunstonh Posts: 119,614 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    My reasoning was about spreading the risk and not having all your funds in the one pot (going by Equitable Life scandal I guess it's still safe to do so as long as the combined pots stay under £85k therefore protected by the Government?).

    Equitable Life was a very limited issue regarding guaranteed annuity rates that it could not afford to honour.   Your workplace pensions could not suffer the issue that Eq Life did.

    Also, there is a good chance you are probably in insured funds and there is no £85k limit on those.

    Now, i'm thinking was this the correct thing to do and perhaps i should be combining all my pension pots into one as I always was under the impression that the companies would always pay any annual administration charges and not me, but now i'm not so sure if you can give some clarification?

    Some employers did but most did not.

    Also against potentially combining my pension pots is perhaps there are transfer fees and hidden early redemption (transferring out) fees which may be hidden in the small print?

    Look at the current value.  Look at the transfer value.  If its the same then there is not.   Transfer costs cannot be hidden.

    To that end, although there may be some benefits to combining my pensions pots, how would these stack up compared to leaving them all in place until retirement age where i may / may not be able to receive a better payout annuity fund?

    We cant answer that as we have no details of what you have or what you want to move it to.   It would require you to run the comparisons.

    If anyone is / was like me and can give their knowledge, advice whether they made the right choice to 'stick' or 'combine' pension pots and whether they feel it paid off for them short or long term would be great to hear please?

    If its best to transfer and combine then you should.  If its not best then you shouldn't.   There is no general rule on this as it depends on the pensions you have and the pensions you would move it to.   You can forget about the Eq Life issues though.

    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Brynsam
    Brynsam Posts: 3,643 Forumite
    Fifth Anniversary 1,000 Posts Name Dropper Combo Breaker
    This is regularly quoted when this question crops up and is worth reading: https://www.thisismoney.co.uk/money/pensions/article-3550085/STEVE-WEBB-merge-small-pension-pots.html
  • Many thanks all for your advice been a great help and i now realise that there are a multitude of factors that need to be calculated and weighed up before deciding if i should transfer one or all of my previous Standard DC workplace pensions into my current one. I now understand it is not necessarily a bad thing just to leave them in place until retirement age but i also very much understand the benefits of having them all in one basket making it much easier to monitor and control.

    What i think i will do as an exercise is find out what the transfer value if versus the current fund value of all my previous pots, along with seeing how each one has performed on average in the past few years compared to my current one.

    I particularly like the Government has announced that it is looking to follow other countries in making sure that there will be a ‘pensions dashboard’ where people can see all their pensions in one place which would then help address having to monitor the multiple pensions that i have accumulated over the years, can't come quick enough!

  • Albermarle
    Albermarle Posts: 27,739 Forumite
    10,000 Posts Seventh Anniversary Name Dropper
    What i think i will do as an exercise is find out what the transfer value if versus the current fund value of all my previous pots, along with seeing how each one has performed on average in the past few years compared to my current one.

    The highest return does not always mean the best investment for you . In simplistic terms , funds that give high returns over a period will most likely suffer more during a period of market downturn . So for most people getting closer to retirement , or actually retired , some reasonable stability is more desired than high growth .

  • Retyre
    Retyre Posts: 62 Forumite
    Ninth Anniversary 10 Posts Combo Breaker
    edited 30 November 2020 at 1:24PM
    Hello spend-a-penny-2, your handle really did make me laugh  :)  

    I considered just the issues you did having lost with Equitable and would offer a few thoughts for you perusal:

    Firstly I'm not sure about your comment regarding the £85K cover, did you mean for cash deposits as surely the investment risk is all yours?

    I decided to move from the company that took over the Equitable funds, not because of risk of loss but because of cost and ease of management.  For me, which may not be the case for you, its important to be able to log on and make instructions with ease.  This was much easier for me with a major online platform than the former.

    There's another reason I keep a number of "pots" with various providers and that is the risk that you won't be able to act.  My experience is that during times of heightened market activity some platforms IT infrastructure is unable to take the load.  This isn't necessarily the case with all at the same time, ergo your chance of being able top make at least some market moves in times of stress is higher if you are on more platforms.  This IMHO really is an issue that needs addressed but I've been seeing it for a number of years now, frenetic activity does seem to take platforms out and thats really not good enough.  Whilst us little players are trying to log in again and again the City is making its most profitable moves, its a real disadvantage if you like to trade actively.

    Just to contradict myself for a moment I haven't moved away from all platforms that are more difficult to manage, I have one form an old employer that the costs are miniscule with no platform fee so its a nice home for less traded investments.  Again as others have said whats right for me may not be right for you.

    Regards
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