Question
Coming up to 65, I find that, due to a varied career, I have three personal pension pots estimated to be worth about, £5k, £20k, and £50k. The terms of the contracts appear to mean that, effectively, I cannot transfer these before retirement/maturity without possible penalties.
My questions are:
is it possible for me to transfer all three at maturity into one pot to achieve a better annuity rate or can each provider insist I apply for an annuity separately?
If the latter is the case, does the '25% tax free commutation' apply to each pot separately or can I, say, commute the £5k pot, leaving me with turning the two larger pots into annuities.
Or is there a third way I haven't thought of?
Many thanks.Answer
Annoying that you can't transfer without penalty - many older personal pensions levy nasty penalties if you want to move to another provider (in part because they paid enormous sales commissions at the outset which they recoup over the life of the pension).
Annuity providers tend to give lower rates on smaller sums, so using a single annuity provider makes sense - especially as you'll likely want to use whoever's offering the best rate at the time for all three pensions.
Annuity providers normally allow you to combine several pensions when buying an annuity, so this shouldn't be a problem.
Technically there are two ways this can happen. The three pensions can be transferred 'as is' at retirement into a pension with the chosen annuity provider, from which the 25% tax-free cash can be paid and an annuity purchased straight away - this is called an immediate vesting personal pension. Or, the 25% tax-free cash can be paid out by each existing pension provider and the balance sent to the annuity provider who'll combine all three into one annuity - called an 'open market option'.
Pension providers must offer you an open market option (i.e. the ability to buy your annuity from another provider) while a immediate vesting transfer might be viable provided your existing providers cease to penalise transfers at retirement.
Both routes will probably lead to a wait and some stress at retirement because insurance companies tend to be rather inefficient at administration, but it's small price to pay if you can bag a better deal on the income you'll receive for the rest of life.
The 25% tax-free cash must be applied to each pension separately, although if you consolidate it'll be 25% of the combined £75k pot.
Before buying an annuity with another provider just check you won't lose any benefits, such as a guaranteed annuity rate, with your existing provider. I suppose the only reason for keeping the pensions seperate (aside from possible loss of benefits) is that it gives you the flexibility to take each pension at a different time, although.chances are you'll want all the tax-free cash and income when you retire.
Coming up to 65, I find that, due to a varied career, I have three personal pension pots estimated to be worth about, £5k, £20k, and £50k. The terms of the contracts appear to mean that, effectively, I cannot transfer these before retirement/maturity without possible penalties.
My questions are:
is it possible for me to transfer all three at maturity into one pot to achieve a better annuity rate or can each provider insist I apply for an annuity separately?
If the latter is the case, does the '25% tax free commutation' apply to each pot separately or can I, say, commute the £5k pot, leaving me with turning the two larger pots into annuities.
Or is there a third way I haven't thought of?
Many thanks.Answer
Annoying that you can't transfer without penalty - many older personal pensions levy nasty penalties if you want to move to another provider (in part because they paid enormous sales commissions at the outset which they recoup over the life of the pension).
Annuity providers tend to give lower rates on smaller sums, so using a single annuity provider makes sense - especially as you'll likely want to use whoever's offering the best rate at the time for all three pensions.
Annuity providers normally allow you to combine several pensions when buying an annuity, so this shouldn't be a problem.
Technically there are two ways this can happen. The three pensions can be transferred 'as is' at retirement into a pension with the chosen annuity provider, from which the 25% tax-free cash can be paid and an annuity purchased straight away - this is called an immediate vesting personal pension. Or, the 25% tax-free cash can be paid out by each existing pension provider and the balance sent to the annuity provider who'll combine all three into one annuity - called an 'open market option'.
Pension providers must offer you an open market option (i.e. the ability to buy your annuity from another provider) while a immediate vesting transfer might be viable provided your existing providers cease to penalise transfers at retirement.
Both routes will probably lead to a wait and some stress at retirement because insurance companies tend to be rather inefficient at administration, but it's small price to pay if you can bag a better deal on the income you'll receive for the rest of life.
The 25% tax-free cash must be applied to each pension separately, although if you consolidate it'll be 25% of the combined £75k pot.
Before buying an annuity with another provider just check you won't lose any benefits, such as a guaranteed annuity rate, with your existing provider. I suppose the only reason for keeping the pensions seperate (aside from possible loss of benefits) is that it gives you the flexibility to take each pension at a different time, although.chances are you'll want all the tax-free cash and income when you retire.
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