Consolidating Pensions in the UK and Abroad

Insight | by Niamh Docherty
Female client with laptop

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.

Research shows that the average UK adult will now have moved jobs 12 times by the time they retire1. Over the course of their career they will have potentially accumulated multiple individual pensions from different employers and providers, and if they have worked abroad; in more than one location.

Recent research shows than many people struggle to keep track of all the paperwork for these multiple policies, and even fewer have a good understanding of how their different pension funds are performing, and the respective charges they are incurring2.

Of the 358 respondents, almost half (47%) had lost track of how many pensions they’d accumulated over the course of their career and were unsure of their cumulative value, nearly two thirds (62%) didn’t know what their pensions were invested in, and more than half (57%) didn’t know what they’re being charged.

All too 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 potentially even the records of that benefit might be lost. But, with the effects of 30 years of compounding growth, sometimes that legacy pension can provide a pleasant surprise, and transferring it, to be managed alongside other retirement investments, can materially boost your pension assets and your future income potential.

We have come across examples of clients who have dismissed a pension that they paid into for ten years at the beginning of their career, possibly only expecting a low six-figure sum. When we contacted the provider for more information on their behalf we have been delighted to be able to report back to them that this ‘early-in-career’ pension was actually worth a significant seven-figure amount. Whilst this will not always be the case, it hopefully serves to illustrate the importance of being proactive, and this is truer now more than ever.

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 track of pensions which they opened years ago as the administrative burden of paperwork from multiple providers over time becomes overwhelming. For such an important part of your financial and life planning, this should never be the case and consolidation can bring your plans together to minimise and simplify their administration, making it easier to manage your pension savings.

Importantly consolidation can also potentially reduce fees and facilitate greater investment growth. Within a single pot, a more coherent and streamlined investment strategy can be implemented which is in line with your current goals and attitude to risk, rather than the investment portfolio that was assigned to you when the plan was initially opened.

This simplification, and the clarity that it can deliver, means that clients can monitor the performance of their investments more easily and better understand the 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. 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 for you in a way 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, a Civil Service pension, and 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 break down 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 qualified Pension Transfer Specialists can help you to identify 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.

[1] Source: Zippia April 2022

[2] 358 Online responses between 24 Oct 2022 and December 10 Dec 2022

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