Combining pensions

[El Pollo Diablo]

People who move jobs ever will be faced with the question of whether they should combine their past pensions into one pot. Is it worth doing?

[Gfamily]

People who move jobs ever will be faced with the question of whether they should combine their past pensions into one pot. Is it worth doing?

[I'm the last person to ask], but one thing I can say is that if you have multiple sources of income, you'll need to keep close track of your tax codes.
The ideal would be to have 1 source - and that would then have the standard L1257 code, that would take the right amount each month. This will avoid you having to possibly find a lump sum to cover underpayments of tax.

On the other hand, multiple pensions means you're avoiding putting all your eggs in one basket. [/I'm the last person to ask]

[lpm]

Don't think so. Dunno. I've never done it. I've got 6 separate pots.

Instinctively that feels like the multiple egg basket thing and spreading the risk. But you're supposed to fine tune everything because a sliver off the annual fees or a tiny improvement in performance compounds over the years.

However the real reason I've not combined is I haven't been arsed. Investigating it has been on my non-urgent to do list for at least 20 years.

[TopBadger]

I have three pots. Two via employers and a SIPP via my IFA. Should really combine former employer pot into the SIPP as it's performance is much better.

Given each pot will be a spread of risks anyway, I don't see much benefit of having many pots.

[Bewildered]

I have pensions in 3 or 4 different countries. One of them may be lost because it’s a very special corner case of brexit, but it’s a tiny amount anyway and I haven’t checked yet.

[Little waster]

The advice I was given was to leave the two tiny pots I have in "final salary pensions" as final salary pensions as they weren't worth transferring and then pool the tiny frozen contribution-based pension pot into my current tiny contribution-based pension pot as with a favourable economic climate* over the next 25 years and compound interest it may be worth up to a tin of cat-food* a week by the time I retire.

Overall the full advice was it was probably best for me to work till I'm 75 and then die two weeks later before the bread turns; the important thing is to have a plan.


*pause for hollow laughter

**I have no intention of getting a cat though, so yum-yum.

[Gfamily]

I've got 5 years employment worth of Final Salary Pension that I could have taken 10 years ago, but decided to hold out because its value was increasing more as a "deferred pension" than it would have through Index linking.
I've asked for a statement of its value from time to time over the last 4 years and it seemed to be growing nicely (6-7% per year), right up until last year when the pension amount it was offering dropped by almost 10%.
I haven't dared* ask for a valuation since, as I've no idea whether it was a 1 off drop I can look forward to a significant bounce back, or whether it's likely to stay with the loss.

*bothered

[discovolante]

I'm on my 4th job since mandatory enrolment schemes were introduced, and I also have a separate personal one for my public sector one that I paid into for about 10 months in 2009 /2010 and f.cked up and lost most of it but pay into it separately anyway because I'm a berk and never got round to deciding whether it was actually any good. I should probably sort that at some point. But anyway financial advisers will probably tell you to stick them all into one that has lower fees. But I feel like political and global crises like war and climate change are not unlikely to have more of an impact and fiddling over .1 of a % is time better spent elsewhere. But that is very much literally my totally uninformed opinion which I will no doubt regret in future. My pension is looking pretty pathetic anyway so...

[Bird on a Fire]

My mum changed jobs loads and has loads of tiny little pots, each offering a few hundred per year. She recently saw a proper pensions advisor who gave different bits of advice for different pots, depending on their size: I think the smallest one is getting cashed out and re-invested and some others combined.

I'm not really up on all the details, and my mum isn't super confident handling numerical stuff on her own, so ymmv etc but if you're talking important amounts of money it might be worth just asking a pro what they reckon.

[IvanV]

These things are complicated. In the olden days it was easy: you didn't get offered fair transfer value, so you didn't even think about moving it.

That remains true in general in relation to salary-based, alias defined benefit, pension schemes. Don't move them. In fact, the FCA advises you not to move it, in most cases.

With defined contribution schemes, where the value of your pension pot is defined, rather than the future income off it, then it is usually much more transparent what the value of your accrued savings in that scheme is. It is much more plausible to consolidate them. They have to give you a reasonably fair transfer value, at least in relation to the basic pension pot value that will, at retirement, be used to buy an annuity and other permitted payouts. The FCA advises that it can be sensible, but warns you look carefully whether there is any supplementary benefit you lose, not (fairly) accounted for in the transfer value, and that the terms and conditions are indeed better for you once consolidated.

Typically people might choose to transfer accrued defined contribution schemes from a variety of former employers into a SIPP.

What about diversity? What about the risk of some pension provider disappearing off into the sunset with your money? You can in fact get some of that diversity through a single pension scheme provider, by choosing what funds your money goes into. They often automatically split your money between a number of independently managed funds, and you can often direct them further around that. Since those are independently managed funds, it should be unlikely that they all suffer a fraud or other disaster together. But it seems to me that there is still a risk of fraud at the level of pension provider, who didn't actually transfer all of its customers money into the funds that it said it did. And so then whose is the smaller sum of money that did go into the funds? There was the Equitable Life scandal which resulted in EL having, in effect, to rob many of its customers to pay out to those it gave guarantees to. Though I suspect the structure of many modern fund-based defined contribution schemes is devised to avoid anything like that happening again. But I tend to think, when it comes to financial scandals, whatever can go wrong might go wrong, and probably there is some benefit to diversity, even though it might be rather hard to value.

[dyqik]

What happens with trying to move pension pots internationally? I have 6 years of postdoc salary contributions in USS, and now 11 years of staff scientist contributions in a TIAA-CREF 401K.

[IvanV]

What happens with trying to move pension pots internationally? I have 6 years of postdoc salary contributions in USS, and now 11 years of staff scientist contributions in a TIAA-CREF 401K.

It is possible in some cases. I have no idea whether it would be possible in your case.

The EU has a Pension Portability Directive, so you can transfer pension value within the EU. But only of employer pension schemes, not state pension schemes. (That is the significance of the term "supplementary pension" you see in the directive - it is only the "supplementary", ie employer scheme that is portable.) Though it is a Directive, which means that individual member states have to transpose it into law by local legislation, not a regulation which is immediately law in every state. So one would tend to suspect the reality, for any given pair of countries involved, depends upon how they have implemented it.

So pension funds in Europe are used to the idea of international transfers coming in. Whether they respond the same when it comes somewhere like the US, I don't know. And then there is the transferring out side of it. What are the local practices in terms of transferring out? Can that apply to any or all of the contributions you have built up? Will they give you a fair transfer value? You might also have to enquire about the tax treatment - would it get the same tax shields as pensions transfers within country?

[monkey]

What happens with trying to move pension pots internationally? I have 6 years of postdoc salary contributions in USS, and now 11 years of staff scientist contributions in a TIAA-CREF 401K.

I have no idea. My benefits people weren't much help when I asked them before. Was just told you can withdraw your money any time, but there'll be a fee. Also weren't that helpful when I asked about possible fees if I wanted my pension to be paid into a non US account. I didn't push it, because that's a potential problem for future me, and have no current plans to move away.

My Austrian friend just moved back to Vienna. He just withdrew his money and took it with him, with no real plans with what to do with it. He only had a couple of years payments though.

[basementer]

What happens with trying to move pension pots internationally? I have 6 years of postdoc salary contributions in USS, and now 11 years of staff scientist contributions in a TIAA-CREF 401K.

It's going to vary considerably between jurisdictions. To get my UK personal pension scheme's fund moved over to NZ, I had to deposit it in one of a small number of schemes ("QROPS") that are recognised by the UK HMRC. Because I didn't transfer it within four years of arriving, any gains between the four year period expired and the date I completed the transfer were taxable under NZ law. The scheme here then had to report back to the UK on all payments made, until I had not been tax resident in the UK under UK law for ten consecutive years. That tripped me up because I'd taken a three month contract in the UK a few years after I moved here, which under UK law counts as residency for tax purposes.

The point I'm trying to make: it depends so much on the tax laws of both jurisdictions that I doubt anyone here can give you a reliable answer.

[hakwright]

I have three pots. Two via employers and a SIPP via my IFA. Should really combine former employer pot into the SIPP as it's performance is much better.

Given each pot will be a spread of risks anyway, I don't see much benefit of having many pots.

This.

If we are talking about pension pots with sums of money in them (not final salary schemes), then I agree with the above. The "all eggs in one basket" comment doesn't really apply, unless you have a pension scheme with all funds invested in a single fund, which would be a little crazy. I have a couple of employer-related schemes, and recently moved one of the closed ones into a SIPP (for same reason - options for investments much better, and prospects for growth much better). The SIPP has about a dozen funds, so I think the eggs/basket thing is not an issue.

There may be some hassle and delay in doing the transfers - but otherwise, my instinct is to have a small number of separate pots. Admin and maintenance is less faff, and there is probably an argument in terms of fees. Having same amount of money in one scheme versus split over many schemes probably causes a difference in how much you lose to fees (better chance of lower fees with fewer pots).

Howard

[lpm]

Who do you have your SIPP with, if you don't mind me asking? How do you go about choosing?