It depends on your individual financial situation and goals. Consider the following factors before consolidating pensions: 

Consolidating pensions can simplify your finances and make it easier to manage your retirement savings, but it’s important to weigh the pros and cons and understand the impact on your overall financial plan. It’s recommended to consult a financial advisor to determine the best course of action for your specific situation. 

Are there any reasons not to combine my pensions 

Yes, there are several reasons not to combine your pensions, including: 

Please note

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Helping you save and plan for retirement is one of the most important things a financial adviser can do for you.

Living comfortably in the present, while having confidence that you can afford your desired lifestyle in retirement is a tricky balancing act, but a good retirement plan can ensure your aspirations are realistic and achievable.

Whether you opt for an Annuity or Flexi-Access Drawdown, at Credencis, we have pension drawdown calculators that can help you.

And the importance of advice doesn’t stop once you retire. Managing your pension income – especially if you opt for Flexi-Access Drawdown – can be tricky. We can help there too, so get in touch.

Before the introduction of Pension Freedoms in 2015, an Annuity was the go-to option when taking your pension income.

You can take up to 25% tax-free cash and use the remainder of your fund to buy a regular income. You choose the frequency of payment, as well as any ‘extras’ such as a spouse’s pension or an increasing payment to counter the effects of inflation.

Once you have settled on your Annuity, it’s unlikely you will be able to change it. It is inflexible and can’t consider future changes in your circumstances or needs.

But it is a regular and stable income, and this makes budgeting in retirement easier. An Annuity pays for life, so you’ll have no concerns about running out of money.

Use our pension calculator to input how many years you are away from retirement and the amount you think you can afford to contribute. Our calculator will let you know how much you could expect to receive at retirement.

If you already have pension pots, you can also add their values.

You can also state how much you’d like to receive at retirement. Our calculator will let you know if you currently have a pension shortfall and how much you would need to contribute to make up that shortfall.

Speak to us and we can take a holistic view of your finances and help put a realistic plan in place to get you where you want to be.

Drawdown has been around for some time, but Flexi-Access Drawdown arrived as part of Pension Freedoms.

As with an Annuity, you can take tax-free cash up to a maximum of 25%, but, unlike an Annuity, the rest of your fund remains invested.

You can then make withdrawals as and when you like, giving you the freedom to decide how much you need at one time, and how much is left.

Flexi-Access Drawdown gives you enormous control over how and when you take your pension. If your fixed costs are covered elsewhere, you might use drawdown to cover discretionary expenses, like holidays.

You are squarely in control of your pension income, but the emphasis is on you to budget responsibly.

Ensuring you don’t run out of money, especially during periods of market volatility, can be tricky. Try our calculator and then speak to us.

Input the number of years you are away from retirement; plus the amount you’d like to designate to drawdown. You can also stipulate how much you’d like to withdraw each year.

Our calculator will confirm the amounts you can take and provide a graph to show how much of your fund will be used up over 20 years.

With Capped Drawdown, you take tax-free cash (up to the standard 25%) and the rest is invested to provide you with an income. That income is taxable and can rise and fall with the stock market. It is not guaranteed to pay for the rest of your life.

The amount you can take as income is capped. Your maximum income amount, calculated using Government Actuary Department (GAD) rates, is reviewed every three years until you reach age 75, after which it is reviewed annually.

If you exceed the cap, you are then considered to be using Flexi-Access Drawdown. Once this happens, you can’t go back into Capped Drawdown.

Enter all the relevant details into our Capped Drawdown calculator and it will tell you the maximum amount you can receive each year, without exceeding the cap.

Capped Drawdown is complicated and once the cap is exceeded there’s no going back, so speak to us if you’re unsure about any withdrawals you plan to make.

The State Pension is likely to be a key source of income for many people when they retire. The new State pension was introduced in April 2016,replacing the previous two tier system, and the State Pension age has been equalised at age 65 for men and women before it immediately starts moving to age 66 so much is changing.

The single tier pension is currently worth £164.35 a week which is increasing to £168.80 from next April. What people will receive is based on their national insurance records, and will need 35 years national insurance records to qualify for the full amount. Some will receive less, while a few could even receive more.

Future Changes to State Pension Age

Equalisation of State Pension ages was achieved during November 2018 and there is now an immediate move which will see SPA for both men and women reach age 66 over the next couple of years.

For men and women born on or after 6 December 1953 SPA gradually begins to move up towards age 66. But it doesn’t do so in an entirely equitable manner. Instead we have a broad brush implementation. Those born between 6 December 1953 and 5 January 1954 will get their State Pension on 6 March 2019. That’s age 65 years and 3 months for some, while being 65 years and 2 months for others. And so on it continues until those born between 6 September 1954 and 5 October 1954 get their benefits from 6 September 2020. After that people will get their State Pension on their 66th birthday.

We then see a move upwards to 67 which is due to take place between 2026 and 2028, affecting those born after 5 April 1960. The current plan is for a further increase to 68 between 2044 and 2046 – relevant to those born on or after 6 April 1977 – but that is very likely to be brought forward.

The following table has the detail:

*It’s possible further increases could take place affecting those born before 1977.

Deferring State Pensions

All of this comes against a backdrop of more people continuing in work in later life1. 10.4% of over 65s are still working, double the number from 20 years ago. The average age on leaving the workforce is 65.1 years for men, up from 63.1 in 1998. For women the change is starker with the average exit age up to 63.9 years from 60.6.

Some of these people do so by choice, others because of necessity. In either situation there is the ability to defer their State Pension until a later date. However the benefit for doing so is considerably worse than it was prior to the introduction of the single tier pension in 2016.

People get an additional 1% of pension for every nine weeks they defer, rather than 1% for every five weeks as it was for those who reached SPA before April 2016. There is no longer the option to take the additional benefit as a lump sum, deferring only gives a greater income when it comes into payment.
For example, if someone did not take their State Pension for one year, they would get a future State Pension which is £493 a year higher (that’s just below 5.8% of the maximum single tier pension of £8,546.20).

This means people will need to live around 17 years before the money they receive from their higher State Pension outweighs the loss of the first year of income – although it does depend by how much the State Pension increases in future.

There may be benefits in deferring, for example, reducing taxable income for those who keep working, but there is a risk people will lose out financially if they die relatively early. Taking the State Pension at SPA and reinvesting any income which is not needed in an ISA or a pension is an alternative option.

Can people boost their State Pension?

The official numbers from the Department for Work and Pensions (DWP) shows significant differences remain in the State Pension. The average pension paid to men is £153.97 a week compared to £126.72 paid to women.

Many people, especially women, need to notify DWP if they are caring for elderly relatives or grandchildren to ensure they claim any national insurance credits.

If people have gaps in their national insurance record, it may be possible to pay voluntary Class 3 National Insurance contributions (Class 2 if self-employed) in order to get a higher State Pension.

Initially most consumers will google Martin Lewis, Citizens Advice, Pension Wise, or the Money Advice Service for free information.

Common searched for questions include:

The total amount you can hold in a pension, called ‘the Lifetime Allowance’, will fall from £1.5 million to £1.25 million on 6th April 2014. Anyone with pension savings above this cap may face a 55% tax charge if they don’t take action.

If you think your pension will exceed £1.25 million, you can apply for protection from the fall in the Lifetime Allowance. There are two kinds of protection you may apply for:-

‘Fixed Protection 2014’ allows you to keep the current Lifetime Allowance of £1.5 million, but on the condition you make no more contributions to a pension after 5th April 2014. This includes employer contributions to a company pension scheme, and building up final salary scheme benefits.

‘Individual Protection’ is also available if your pensions will be worth more than £1.25 million on 5th April 2014. This allows you to keep a Lifetime Allowance of whatever your pensions are worth on that date, up to £1.5 million. So for instance, if your pensions are worth £1.4 million on 5th April 2014, individual protection will set your Lifetime Allowance at £1.4 million. While this may be lower than the Lifetime Allowance provided by fixed protection, you can continue to make pension contributions under individual protection.

Do I Need Fixed or Individual Protection?

If your pension savings fall below £1.25 million on 5th April 2014, then you do not have the option to apply for individual protection. In this scenario fixed protection will give you a Lifetime Allowance of £1.5 million, but only if you stop pension contributions. You therefore have to weigh up how likely you are to exceed £1.25 million at retirement and how much you value any employer pension contributions.

If your pension savings exceed £1.25 million on 5th April 2014, then the most appropriate form of protection will depend on the value of your pension savings, and whether you want to continue making pension contributions.

Generally speaking, the higher the value of your pensions on 5th April 2014, the more attractive individual protection looks, because it preserves a higher lifetime allowance, up to a maximum of £1.5 million. Similarly if you enjoy generous employer contributions to your pension, individual protection may look appealing because it allows you to maintain these contributions.

These contributions are likely to incur a 55% tax charge, because they will probably boost your pension above your individual Lifetime Allowance (unless you suffer investment losses and your fund value declines as a result). However you may take the view that getting 45% of these contributions is better than not getting anything at all, but be aware that any contributions you personally have to make to get your employer’s contribution are also likely to face the 55% tax.

How do I Apply for Protection?

The good news is you can apply for both kinds of protection, if your pension is worth over £1.25 million on 5th April 2014, but you aren’t sure whether you will want to make any further contributions.

You must apply for Fixed Protection by 5th April 2014, but cannot apply for individual protection yet.

What if I Already Have Protection?

Because this not the first time the Lifetime Allowance has been cut, you may already have some form of protection in place. If you do, you cannot apply for fixed protection.

If you have already have ‘primary protection’, you cannot apply for individual protection.

What Else Can I Do?

If you are thinking of applying for fixed protection, you may want to make a final pension contribution while you still can. Depending on how much you have contributed in previous years you could contribute as much as £200,000 to a pension by 5th April 2014. Depending on your tax band this contribution could cost you as little as £110,000 if you are a high-earning 45% taxpayer.

Consolidating pensions in a SIPP (Self Invested Personal Pension) can help you make managing them easier, in particular working out how much they are worth and whether you might hit the Lifetime Allowance.

If you apply for Fixed Protection you won’t be able to contribute any more to a pension, so make the most of other tax shelters. Primarily ISAs for yourself and your spouse, or look at Venture Capital Trusts if you are feeling more adventurous. You may also want to make pension contributions for your spouse and children, as these will still be available to you and will attract tax relief.

For bespoke pension advice on both the Annual and Lifetime Allowance contact Credencis.

We are situated between Derby and Nottingham but visit clients nationwide.

Credencis

“Live for today, Invest for tomorrow”