Trent Lyons: Merge your pension pots

Know what you have. Not every pension contract is the same and some have valuable features or guarantees that may be lost when transferring.
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There are also numerous ways in which a pension provider can levy charges – be aware of the overall cost rather than just the headline fee in order to make a true comparison.

Assess the total balance. You need to determine what type of pension contract is required to suit your personal requirements. While a low-cost, simple option may suit basic needs, investors with larger balances or those whose circumstances require detailed planning may want to consider more sophisticated investment options, which are not available within all pension plans.

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Look at the big picture. Pensions should not be looked at in isolation but instead be viewed as just one piece of your overall portfolio. Any decisions that are taken as part of a pensions merging process should be made after considering your overall financial objectives and fit under a wider strategic plan, which takes into account all your assets.

Take care with workplace pension transfers. In most cases, a workplace pension may offer you a low-cost option. While transferring away from this might ultimately be the right course of action, before proceeding you must ensure you have considered and/or been advised on all of the implications of doing so. Making such a move could result in an employer no longer having to pay pension contributions. Many of the pension providers will offer you an option of making a partial transfer, which is another option to consider. This allows the account to remain open to continue receiving contributions.

Don’t ignore final salary pensions. This is a complex area where legislation dictates that you must involve a financial adviser if you are considering making a transfer. While receiving a lump sum transfer value might suit you, it is vital that you fully understand the risk of forfeiting what could well be a stable income for life. The transfer of a final salary scheme could, however, prove particularly beneficial if you are concerned about inheritance planning in light of the new flexible death benefit rules, which govern defined contribution pensions.

Get advice. It’s so important to have a firm understanding of your pension contracts which, for many people, can be very complex. Enlisting the services of a good professional adviser will help ensure you have a full understanding of the decisions taken and the potential benefits you should expect.

• Trent Lyons is a financial analyst at Chiene + Tait Financial Planning

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