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Consolidation time: What do you do if you have more than one pension pot?


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Many of us have an old pension from a previous employment.

If you are in this situation, what do you do to ensure you can get the benefits when you retire?

It is important to make sure you are aware of and have located all your pension pots from previous employers and they have the correct address for you.

You don't want your retirement income information going to the wrong address.

You may have a very valuable pension pot waiting to be claimed. Remember, every €25,000 is worth €1,000 a year in income (assuming annuity rate of 4pc flat rate, aged 68). Three €25,000 pots all add up.

Have you worked abroad? Are there previous employers here you keep meaning to contact about old pension pots?

Work practices have changed a lot over the years, but pension rules remain stubbornly rigid, according to managing director of financial advisory company Investwise David Quinn.

He says he routinely comes across clients with four or more old pensions, either from old employments or their own personal pensions, and it is a major headache to consolidate them into one single pension.

Consolidating all your pensions into one means everything is in one place. This saves you time when it comes to managing your pensions.

Lower charges

And it could mean lower charges. There will be one set of charges instead of a charge per pension.

Quinn says there are some rules of thumb when approaching this issue.

Consider what type of pension you have contributed to in the past.

If it is a defined benefit scheme, then think hard about consolidating it into your existing scheme.

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A defined benefit scheme promises to pay a defined percentage of your final salary at retirement.

These types of pensions are becoming rarer as they are expensive to fund.

"In many cases, the transfer value will not be as attractive as the promised future pension income," Quinn cautions.

The transfer value is the cash sum the trustees of the defined benefit scheme have converted the benefits you have built up into, according to experts.

Quinn says that if your old schemes are defined contribution ones, he would recommend looking at consolidating these old pensions into your current scheme in some cases.

Defined contribution schemes

A defined contribution scheme is one where the benefits you get on retirement depend on what has been invested into the plan, and for the length of time it has been invested.

Quinn says putting an old defined contribution scheme into a new company one is likely to be cost-effective.

However, it is not always beneficial to combine all your old pensions into one place.

Having two or three different pensions from different employments can give some flexibility when it comes to retirement, where you can 'retire' the funds at different times, says Quinn.

"This can allow access to a lump sum from one pension, for example, while maintaining another pension for later retirement."

The alternative is to move them to what is called a "retirement bond", but in many cases these can be expensive, particularly if the financial adviser is earning a commission on the transaction.

There may not be any charge or commission to transfer to a large company scheme, and the management fees can be significantly lower.

Typical costs will be at least €2,500.

When considering personal pensions, the rules are slightly different.

Unfortunately, personal pensions cannot be consolidated directly into a company pension scheme. They can be transferred into a PRSA (pension related savings account), and then onto a company pension, Quinn says.

Talk to your financial adviser to help you make the right decision.

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