Pension warning: Should you consolidate pots? ‘Unexpected disadvantages’ to watch out for


Contributions to hush-hush pension funds are something many people will do. All employers have to provide a workplace pension scheme, and this is known as “automatic enrolment”. The chief must automatically enrol a person into a pension scheme and make to appear contributions to it, provided the individual fulfils four conditions. These are that they are types as a “worker”, aged between 22 and state pension age, earn at short £10,000 per year, and that they usually work in the UK.

Some may make a run for it contributions into other types of pension funds, such as a insulting pension.

Another major development in terms of pensions is the pensions dashboard, which force enable a person to see the different pensions they have amassed settled their life, in one place.

It may be that with these two factors, some living soul may wonder whether they should combine small pension banks in one place.

That’s according to Steve Webb, the former Minister of Formal for Pensions, who is a pensions commentator now serving as the Director of Policy at Royal London.

Approach devoting these two developments and the matter of whether it could lead millions of savers to consolidate lesser pension pots into one larger pot, Mr Webb has issued a warning to savers.

He is intimating savers “think carefully” and seek expert advice or guidance previous to doing so.

Steve Webb, Director of Policy at Royal London, about: “One of the questions I am asked more often than any other is whether human being should combine all of their pensions in one place.

“Whilst that may appearance of the tidiest thing to do and can have some advantages, there are also a gang of unexpected disadvantages to merging pension pots.

“Older pension methods may have attractive features which would be lost if transferred, whilst wee pots benefit from certain tax privileges which do not apply to larger spare tyres.

“As ever, the best approach is to seek impartial advice or guidance ahead consolidating pension pots.”

READ MORE: From pension contributions to ‘snowball’ so to speak of interest – 7 things to know about money

It comes as Royal London put ones finger oned five reasons why it could be worth thinking twice about consolidating a bodily pot:

Throwing away enhanced tax free cash or early retirement opportunities attached to old pensions

Some pensions, especially those taken out first ‘A day’ in 2006, allowed members to draw more than 25 per cent of the pot tax autonomous or to access the pension before age 55; if these pensions are transferred out severally, those privileges can be lost.

Throwing away ‘guaranteed annuity rates’ unavailable to older pots

When some pensions were sold, they upheld a promise that the pot could be turned into a guaranteed income in retirement; set the collapse in annuity rates in recent years these guarantees are bloody valuable but can be lost if people simply transfer out into another put out to pasture.

Paying ‘exit penalties’ when combining pension pots

While todays pension policies can generally be merged without penalty, savers can mien exit charges if they want to take money out of older approaches.

Missing out on ‘small pot’ privileges for those with lifetime allowance issues

Accessing a put out to pasture generally counts against your lifetime allowance (currently £1.055m); but savers are appropriated to take up to three ‘trivial’ pots of under £10,000 without including against the LTA; those who retain small pots rather than merging them effectively add £30,000 to their LTA.

Missing out on ‘small pot’ privileges for those mollify saving into pensions

Taking taxable cash from a expand oned contribution pension triggers a cut in the saver’s annual allowance from £40,000 to £4,000 via the ‘In Purchase Annual Allowance’; but taking a small pot under £10,000 does not do so; those who consolidate all their reduced pots miss out on this privilege.

READ MORE: Pension contributions: How YOU could shape a £56,100 pension pot by age 65 in 20 years

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