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Glossary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Combining Pensions
Combining Pensions

As working patterns have changed, so have the way employees save for their retirement. In the past, people tended to stay in a job for life and belonged to a single pension scheme. These days, the majority of workers switch jobs and change careers throughout their working lives, resulting in having several pension schemes. If you are in such a position where you are a member of more than one pension scheme, it may benefit you financially to consider combining pensions.

Some important considerations about moving and combining pensions

Moving and combining pensions can help enhance your overall retirement income through:

  • More dynamic investment performance

  • Lower fees and charges

However, also consider the possible disadvantages of combining pensions:

  • Exorbitant exit penalties on your existing fund

  • Costly professional financial advice

  • Losing existing benefits such as guaranteed annuity rates

  • Being persuaded into buying a higher-charging pension product

When considering combining pensions, remember that if you are approaching retirement, you might not have sufficient time to regain the additional costs even if you are fortunate enough to secure a better performing fund.

Different Types of Pensions Schemes

Before you make any decisions whether or not you'll be moving or combining pensions, take stock of what you already have.

If you have a final-salary scheme where you have any past or existing contributions, do not be tempted to move it, unless you are moving to a new job which provides another final-salary scheme with similar benefits. A final-salary scheme pays a pension based on your salary when you leave your job and the number of years of service.

If you are lucky enough to be allowed to continue your contributions into a final-salary scheme, check if your employer will allow previous contributions from other pensions to be transferred into it before combining pensions.

Do not be tempted if your previous employer tries to move your pension away by offering you a cash lump sum or by increasing your fund with an enhanced transfer value. Remember that even these generous offers may not make up for the benefits you are surrendering when combining pensions. Moreover, you may require an outstandingly high rate of investment return on the funds you are given to achieve what you would get if you remained in the final-salary scheme.

However, if you have a money purchase occupational scheme or a personal pension, you should consider combining your past pensions into one place. These types of pensions rely on contributions and investment growth to boost the total value of your fund. There are risks involved in such schemes which depend on the performance of the stock market. If the stock market does well, so will your fund and vice-versa. On retirement, you can use this fund to buy an annuity which will provide you with a regular annual income for life.

With these types of schemes, it makes more financial sense to start combining pensions together as you may:

  • Benefit from lower charges and fees

  • Be able to use the consolidated funds to enhance overall performance

  • Be able to manage and judge overall fund performance more quickly and take appropriate action

  • Have to deal with less paperwork and less administration

The most significant benefit you can get from combining pensions is the opportunity to make all your savings and investments work harder for you in one place. This consolidated approach of combining pensions could earn you a higher growth, making it possible for you to retire earlier or receive a higher income when you do stop working.

 Learn more about pensions

 
 
 
 
 
 
 
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