Consolidating Pensions in the UK and Abroad

Jun

28

pension and piggy bank

There are several ways that Forth Capital can simplify the finances of our clients but one of the most vital areas is in undertaking a review of someone’s multiple retirement funds accumulated over years of work. Often our clients will have individual pensions from time employed in multiple roles and/or providers and in more than one location which they have acquired over the years.

Research shows that the average Brit will move jobs at least 6 times in their working career and that number rises to over 12 for younger generations.  Many people will continue to keep track of and receive paperwork for several policies but how many people have a good understanding of their total benefits when they have been forced to track so much information. 

All to often the assumption can be that the pension benefit built up from that first job out of full-time education will not be worth a meaningful amount and records of that benefit are lost.  But, with the effects of 30 years of compounding growth, sometimes that pension can provide a pleasant surprise on the upside and transferring it to be managed alongside other retirement investments can boost your financial security.

We have come across examples of clients who have dismissed a pension they had for ten years at the beginning of their career, possibly only expecting a low six-figure sum.  When we have contacted the provider for more information on their behalf we have been delighted to report back to them that this minor pension in their eyes is worth a far more significant seven-figure amount.  This is obviously an extreme example and will not always be the case but hopefully serves to illustrate the importance of being proactive.

This is truer, now more than ever.  A survey conducted in April this year indicated that many people have taken the opportunity during the pandemic to review their pensions.  Of 2,000 people surveyed 26% of men and 22% of woman chose to transfer or consolidate a pension.  In our opinion, this number is still far too low as many more people will still be accumulating pensions from a variety of sources without much knowledge of what they have and crucially, what it could provide for them in retirement.

No two situations will ever be the same, so it is key to speak to a financial adviser to receive tailored and suitable advice.  In this article I will try to outline the primary benefits and pitfalls to be aware of when considering transferring a pension.

What are the most common benefits of consolidating your pensions?

To briefly summarise before going into more detail, bringing your pensions together in a consolidation exercise can have a variety of benefits but primarily it can:

  • Lower the total costs across several plans
  • Ease administration and reduce the stress of record keeping
  • Improve the longer term performance of your pension pots

It is all too common for people to lose interest and set aside pensions which they opened years ago as the administrative burden of paperwork from multiple providers can become overwhelming.  For such an important part of your financial planning, this should never be the case and consolidation can bring your plans together to minimise bookkeeping, making it easier to manage your savings.

This can also bring the benefit of reduced costs as more expensive schemes are removed alongside the advantages attached to having a larger pension managed within a single pot.  Within a single pot, a more coherent and streamlined investment strategy can be implemented which is in line with your current goals rather than the investment funds that were assigned to you when a legacy plan was initially opened.

The clarity that this can bring for our clients allows them to much more easily monitor the investment performance and progress they are making towards their financial independence.

Areas to be aware of?

Transferring pensions is not without its pitfalls though and it is important to point out what people should look out for when they are reviewing their pensions.  Older plans may have valuable guarantees attached to them such as a Guaranteed Annuity Rate (GAR) that cannot be achieved via the open market today.  Guaranteed income could form a valuable part of a retirement plan alongside more flexible benefits.

Certain pensions can also allow members to take a larger tax-free cash lump sum than the 25% which is standard today.  This can be useful when tax-free capital is needed on retirement, for instance, to clear the balance on a mortgage.  That said, if the costs of the plan and investment performance are not favourable it can still be worth seeking advice.

Transferring a UK pension abroad has many unique advantages but comes with other areas you should be made aware of.  A trusted adviser should help you to consider the positive reasons for consolidating outside of the UK and also point out the considerations you should make on fees and transfer charges.  You should never feel rushed into a decision when moving into a scheme such as a ROPS and the facts should be laid out in a manner that allows you to determine the best option.  In the context of this, some pension benefits cannot be transferred such as the UK State Pension and Civil Service or certain public sector pension funds.

Is consolidation right for me?

Whilst there are numerous benefits to consolidating pensions, the combined value can often make a single large pension one of your primary assets and a key part of your plans for retirement.  With this in mind, it is always best to seek the opinion of a qualified professional who can breakdown the advantages, ensure a clear understanding of the underlying investment strategy and then continue to work with you on an ongoing basis to achieve your goals.

Forth Capital’s highly competent Pension Transfer Specialists can help you to see the path that is in your best interests and then guide you through the process of consolidating your retirement savings into a single plan to allow you to live the retirement have worked for.

Consolidating Pensions FAQs

The primary benefits can vary but often consolidation can reduce costs, lower the administrative challenge, and improve the longer-term performance. Each one on its own is worth reviewing and will hopefully help you to achieve your life and retirement goals.
If your retirement savings are held outside of a pension, undertaking a review can still hold many of the same benefits such as consolidating the investment strategy and restructuring costs. It may be that there are areas of your finances that you have not considered previously which one of our advisers can point out to you.
This is certainly an option but without being armed with the facts, it is impossible to know whether your situation could be improved. We would always recommend gathering information and reviewing your position regularly to ensure that your objectives are still being met.
Finding a lost pension policy can prove challenging but it is important to claim everything which you are entitled to! First, check if you have any paperwork that might provide a clue as to the provider or policy number. Failing that, do not be afraid to contact old employers to see if they have any records themselves which may prove useful. In the UK, the Pension Tracing Service can also help you to locate lost pension.
There is not a limit to the number of pension policies than an individual can have but there are limits on the amount that can be contributed to pensions. An adviser can help you to understand how the limits apply to you wherever you live and facilitate a contribution.
Scott Heaney

The Author

Scott Heaney

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