Combining multiple pension plans at retirement
If you've worked for more than one company, it’s possible that you have accumulated pension funds in several company pensions and personal pensions. If so, you can merge them together at retirement and purchase one lifetime annuity.
The main benefits to you are that you'll only have one annuity income payment to keep track of and you could receive a higher income because a larger fund made up of a number of merged plans can give increased purchasing power and a reduction in administration costs.
Some general points to consider
You should have received regular statements from each of your pension providers, which show how well the underlying investments are performing and a projection of the benefits that will be available to you are retirement.
In the event that you have lost track of some of your pension arrangements you can use the Pension Tracing Service who will try to find them for you.
Once you have traced all your pension providers, you'll need to know the value of all the pension funds that you want to use to buy an annuity.
Ask for retirement packs from each of your pension providers based on the actual date that you wish to take pension benefits. Make sure that they include current fund values and transfer values together with annuity quotes based on your specific requirements.
If there is a difference between the current fund values and transfer values, this will highlight any transfer penalties that will be applied for moving your pension funds to another pension provider.
Some plans may penalise you if take your retirement benefits before your Normal Retirement Date (NRD), which is the retirement date that you originally selected. You should ask if you would be affected by such charges.
If your plans have different NRDs, check what impact merging will have on your funds. These early retirement charges can be quite large, so take care before accessing or transferring your pension funds.
It is a good idea to ask if you qualify for any guaranteed annuity rates and what are the specific rules applied when accessing them.
Any rights to guaranteed annuity rates will be lost if you transfer your pension funds to another pension provider.
Once you are in possession of all the necessary information, you will need to carry out a comparison of the total income available from all of your pensions against the best annuity quote that you can find on the open market. You may wish to omit some of your plans from this process if the level of income offered by your existing pension provider far exceeds that available on the open market. Make sure that the quotes that you compare are on a like for like basis otherwise the conclusions of your comparison will be incorrect.
Deciding whether combining multiple pension plans at retirement is a good idea or not is not that simple. Depending on the replies that you receive from your pension providers, it could be a good idea to merge all your pension pots or just a few of them.
By far the easiest way to find out what course of action to take is to seek advice from an independent annuity specialist.
They can write to each company, ask all the necessary questions, present you with all your options and give you advice regarding the choices for you. In addition, they can also help complete all the necessary paperwork and see that your annuity is set up in accordance with your wishes.
Once you have bought an annuity, it cannot be changed, so make sure that you obtain all the information that you need to ensure the best outcome for you. Getting advice will allow you to achieve this.