Combining pension pots.

Bod_1234

I'm 54 and have a couple of questions relating to combining pots.

Background 
I have 2 pension pots with Scottish Widows, a workplace pension, from when I worked for a company, it's got the bulk of my pension in there (£145k). A few years ago I left and it converted to a new name "ex-employee of X company".  It's got a 0.3% management charge which is quite low.

I now work for myself, as a limited company, and have a personal pension with Scottish Widows, slightly more aggressive risk profile, nothing silly. It comes with a 0.5% management fee, and has £35 in there.  I am putting away £2k a month and taking the tax relief on that via my company (a net pay arrangement, I think).

Questions
Am I missing out on anything by keeping these separate? Scottish Widows said I couldn't pay into my old workplace pension, which is why I have a new one (that has a higher management fee).

Is there a benefit to keeping these separate? I have a higher risk profile on the smaller one, as there more to gain, less to lose, as my main pension is on the "safer" (if you can call it that in Trump times).

I'm probably going to do a soft retirement, so might want to take these pensions at different times, I really don't understand crystallisation, but apparently it's important, and feels like keeping them separate might be good?

Could I lump sum move money from my private pension to the safer, lower management fee one? Is there any other benefits in doing so?

As you might have guessed, I find pensions an financial planning really confusing.

I did visit an pension advisor, but all they were interested in was selling me a different pension. :-(

Thanks for any insights 

dharm999

The 3% charge is very high not quite low, or did you mean 0.3%?  What funds are you invested in? If it were me, I would look to move it elsewhere where the charges are much lower.

Marcon

Bod_1234 said:

I'm 54 and have a couple of questions relating to combining pots.

Background 
I have 2 pension pots with Scottish Widows, a workplace pension, from when I worked for a company, it's got the bulk of my pension in there (£145k). A few years ago I left and it converted to a new name "ex-employee of X company".  It's got a 3% management charge which is quite low.

I now work for myself, as a limited company, and have a personal pension with Scottish Widows, slightly more aggressive risk profile, nothing silly. It comes with a 0.5% management fee, and has £35 in there.  I am putting away £2k a month and taking the tax relief on that via my company (a net pay arrangement, I think).

If you are contributing to some sort of personal pension arrangement (and it sounds as if you are), then you are in a 'relief at source' (RAS) scheme. If you make personal payments out of your salary from your company, you'll get basic rate relief added by the provider.

'Net pay' (confusingly!) is where your pension contribution is deducted from your salary and your contribution is paid gross to the provider - not an option where it's a RAS scheme.

Hopefully this is just a semantic issue and your company is actually making the payments on your behalf, meaning you get the same tax saving and also an NI saving?

It's important that the provider knows whether they are personal or company contributions - the former means they add tax relief, the latter means there isn't any tax relief to add to the pot; your company claims the contribution as a trading expense, getting corporation tax relief in the process.

Bod_1234 said:

Questions
Am I missing out on anything by keeping these separate? Scottish Widows said I couldn't pay into my old workplace pension, which is why I have a new one (that has a higher management fee).

Is there a benefit to keeping these separate? I have a higher risk profile on the smaller one, as there more to gain, less to lose, as my main pension is on the "safer" (if you can call it that in Trump times).

I'm probably going to do a soft retirement, so might want to take these pensions at different times, I really don't understand crystallisation, but apparently it's important, and feels like keeping them separate might be good?

Could I lump sum move money from my private pension to the safer, lower management fee one? Is there any other benefits in doing so?

If your old pension won't accept contributions from you/your company, it's highly unlikely it will accept a transfer from your pension scheme. Only way to be certain is to ask the provider.

You can (almost) always switch the funds in which you are invested, rather than transferring or finding a whole new pension provider. If you look online, that will give you an indication of the funds from which you can choose with your SW plan(s).

Some basic reading should help. Try https://www.moneyhelper.org.uk/en/pensions-and-retirement

Bod_1234

dharm999 said:

The 3% charge is very high not quite low, or did you mean 0.3%? 

Yeh, sorry, that should have said 0.3%

Fixed...

Bod_1234

So the private pension is on a net pay arrangement, there is nothing added to what I pay in. I am the only employee in my limited company,  and I take the tax relief in my company on those pension contributions, which lowers my company earnings, rather than having it uplifted by 20% at the other end.  I think this is quite a normal way to do things, and essentially a swings and roundabouts situation, where there is a tax saving in my company or an uplift in what I pay in, as I determine what I pay in, the 2 systems are essentially the same for me, except in management of it, and where the tax is charged.

ali_bear

The benefit of combining pots is easier management and much simpler interaction with HMRC when you start to draw on those funds after retirement. 

When that time comes you will most likely want to move them all into a modern scheme that supports all the flexibility for taking the tax free cash and pension income. 

Between now and then it is more important to look at the annual charges and especially how the money is being invested. 

Marcon

Bod_1234 said:

So the private pension is on a net pay arrangement, there is nothing added to what I pay in. I am the only employee in my limited company,  and I take the tax relief in my company on those pension contributions, which lowers my company earnings, rather than having it uplifted by 20% at the other end.  I think this is quite a normal way to do things, and essentially a swings and roundabouts situation, where there is a tax saving in my company or an uplift in what I pay in, as I determine what I pay in, the 2 systems are essentially the same for me, except in management of it, and where the tax is charged.

As much for the benefit of other readers...

That's not a net pay arrangement, as I've explained above. It is an employer contribution to a RAS scheme.

If you made a personal contribution to a RAS scheme (as opposed to an employer contribution), then the provider would add tax relief of 25%, not 20%. You need to think in gross terms: if you want to have £100 in your 'pot', the you would make a personal contribution of £80 and the provider would add £20 of tax relief = £100.

Bod_1234

Now I'm really confused, as every source online says there are only 2 types, "net pay" and "at source", and you are saying mine is now some 3rd option called RAS.  Even Scottish Widows when I set it up on the phone called it a net pay arrangement...

Pensions are really hard work. And this sort of stuff makes it even worse..

Albermarle

Is there a benefit to keeping these separate? I have a higher risk profile on the smaller one, as there more to gain, less to lose, as my main pension is on the "safer"

Others have mentioned it, but I am going to labour the point to make sure it is clear.

The risk or safety of a pension is not connected to who the provider is.
It is entirely down to the investments you hold in that pension.
As you can almost always change the investments you have in a pension, then you can change the risk profile yourself without ever moving providers.

It may make sense to consolidate the two pensions at some point ( maybe into a new third one), but this is because you might get lower charges and the admin is a bit easier, especially when you start to withdraw.
However moving provider because one is 'safer' than the other, makes no sense.

Bod_1234

I understand I can change the risk profile of the entire pension pot.  However what I have currently, I can set a lower risk profile for the large pot, and higher risk profile for the smaller pot.  I would lose that if I combined.

Marcon

Bod_1234 said:

Now I'm really confused, as every source online says there are only 2 types, "net pay" and "at source", and you are saying mine is now some 3rd option called RAS.  Even Scottish Widows when I set it up on the phone called it a net pay arrangement...

Pensions are really hard work. And this sort of stuff makes it even worse..

'This sort of stuff' was actually accurate. I suspect you've read something alone the lines of 'tax relief can be given in one of two ways: either net pay or at source'.

The methods are net pay, and (giving it the full title) relief at source. 

Have a look at the link I gave above - wet towel and glass of something strong to hand if necessary!