Potential “deadly sins” of pension switching. Things to check carefully when thinking about consolidating your personal pensions

If you have been working for a while the chances are you have changed employer during your career and as a result you have built up a number of money purchase pension “pots”. More than a few different pensions can be difficult and time-consuming to keep track of. What to do with those pots depends on what you want from them but most people at least just want them in one place so they can keep an eye on them.

This mini-series will cover some of the things that you should check when considering moving your personal pensions. There is at least one potentially “deadly sin” to avoid for each.

This series only applies to Defined Contribution (sometimes known as money purchase) pensions. It is not exhaustive and is not intended to address participation in auto-enrolment or defined benefits pensions.

Topics covered by this series include basic practicalities; charges; your access and plan limitations; investment options and range; death benefits; special benefits; the transfer value, including penalties/exit charges.

Part One: Basic Practicalities

Are you or your employer paying into the pension?

Potential “deadly sin”: If your employer is paying into your pension, you should think very carefully about whether you want to transfer your money away from it. If you can only transfer your pension in full, it will close the pension and your employer can no longer pay contributions into it. Employer contributions are free benefits. You will lose money if they stop. If you really want to transfer, find out from your employer first if they will pay contributions to another plan.

If you are not receiving employer contributions but are paying into the pension yourself and want to transfer it, you will need to stop contributions and set them up again in the new pension. Contributions do not continue automatically.

Will any of your pensions accept transfers into them?

 Your pension does not have to accept transfers into it and not all do. Before going through the rest of the details, will all your existing pensions accept transfers into them?

Are you suffering from serious ill health?

This is an unusual consideration but if you switch a pension from one to another while you are aware of a serious health condition affecting your life expectancy, and you die shortly afterwards (e.g. within two years), HMRC may seek to bring the value of that pension into consideration for inheritance tax charges. For most people in good health this should not be an issue if there is no reasonable expectation that they would pass away shortly after switching their pension plan(s).

Seek Advice.

Can you do this yourself? You probably shouldn’t. As you will see throughout this series, there are many things to consider. Most of these will have a significant impact on your pension money and what it can do for you.

The right thing to do depends on your circumstances and what you want and need your pension money to do for you now and in the future.

This is where professional advice can be invaluable. You should speak to a qualified financial advisor before taking any action.

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26 Jan 2024

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