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Bringing pensions together

21 February 2011 / by Paul Dicken

Pension transfers and consolidation can seem a complicated process, not least because pensions themselves can seem complex, before you start looking at how they can be moved.

The world of pensions is changing, however, with flexibility likely to be at the heart of pension reform as the coalition government seeks to increase the savings rate and pension provision.

One element of the reforms, embarked on by the previous Labour government, is the introduction of pension autoenrolment for those working and earning over a minimum amount.

An independent review of the autoenrolment proposals for the coalition government put the issue of pension transfers at the centre of pension reform, urging the government to take a separate review of pension transfers in order to ‘move quickly to a world where transfers between pension schemes on change of employment...become a more normal practice.’

Although auto-enrolment will boost pension savings, the default autoenrolment option will restrict transfers.


The independent review of autoenrolment said people on average move between employers 11 times in their lifetime, which can easily lead to the collecting of disparate pension plans all from different jobs.

Not only can managing lots of different plans be time-consuming and difficult, it can reduce the ability to maximise returns on investments as small amounts are accumulating returns individually, rather than investing larger amounts in different assets, and earning the compound interest on those investments.

Consolidating pensions into one plan does not necessarily mean less diversity in how your pension savings are invested. The underlying investment in different plans could potentially be very similar, while managing pension investments in one place can allow you to dictate how
those savings are invested.

Head of pensions at Fair Investment Company, George Ladds, said: “Keeping track of up to 11 different pension pots would be a time consuming exercise – to say the least. Consolidating pensions doesn’t have to be difficult; a good provider will manage the whole process for you, allowing a single view of your pension savings.”

Examples of pension contracts where straightforward transfers may be possible include a stakeholder pension offering a simple, lower cost type of pension and a Self Invested Personal Pension (SIPP), which generally allow flexibility and control over the underlying investments in your pension.

You can potentially transfer existing plans into these or other types of pension, but there are some limitations and important considerations.

Key things to remember

It is important to be fully informed about the implications of transferring from one pension to another.

  • A defined-benefit pension (for example, a final salary scheme or career average scheme) offers a guaranteed predetermined level of pension in retirement and is a specific type of pension.
  • This would be lost if it was transferred to a defined-contribution pension, such as a stakeholder pension or SIPP.
  • You should consider any other benefits or guarantees that existing pensions offer which may be lost by transferring to a new plan, as well as any exit fees or penalty charges that may apply.
  • Another consideration could be whether you can move a contracted-out or protected rights pension to the new plan. Contracted-out pensions refer to the state second pension which is available to people earning over a certain amount. You can ‘contract out’ of the state second pension scheme and receive National Insurance rebates into your personal pension plan; although, from April 2012 contracting-out will no longer be possible.
  • Charges are a key part of any pension scheme and will vary depending on the scheme and the underlying investments. It is important to be clear on what you are receiving in a pension for the charges levied.

Independent financial advice should be sought if you are unsure about the implications of transferring existing pension.

Visit the Pension section for more information about the Fair Investment SIPP.

© Fair Investment Company Ltd