Key Post Should I merge two existing pension funds into one?

LDFerguson

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This type of query comes up a lot on Askaboutmoney, from people who have two or more pension funds accumulated and are wondering if they should amalgamate them into one.

There's no black and white answer to this. You need to do a bit of homework. If a broker or salesman is the one that's proposing the transfer, get them to do the homework for you.

Here's a list of things that you should consider before transferring from one pension fund to another.

Does the transfer affect my options at retirement?
Transfers between certain types of pension plan can have a major impact on what you can do when you retire. For example, an Occupational Pension Scheme and a PRSA have very different options available at retirement. So if you transfer from an Occupational Pension Scheme to a PRSA you're changing your retirement options. You need to understand what your retirement options are before and after any proposed transfer.

Does the transfer affect when I can retire?
Again, different options have different impacts. For example, if you have a fund in a Buy-Out Bond, you can choose to withdraw your benefits from age 50 onwards, regardless of whether or not you're working at that time. If you have a fund in a PRSA, you can only draw your benefits before age 60 if you are actually retiring from PAYE employment (not self-employment) at the time or are in serious ill-health.

Would I be better off having multiple pension pots?
Although some people like the administrative neatness of having just one pension fund, there are arguments against. For example, if you amalgamate three funds from three previous employments into your current employer's pension scheme, you can then only access those funds at one time when you retire from your current employer's scheme.

By keeping them seperate, you can "retire" them at different times. Some people like to phase into retirement, e.g. retire one pension fund at 60 and use the money to fund a drop to a 4-day week. Do the same again at 63 and drop to a 3-day week and so on. This may or may not be possible or practical for you, but it's something worth considering.

What are the charges, before and after the transfer?
Find out what charges you will pay on an ongoing basis if you choose to leave your fund where it is. Find out what the charges will be if you transfer. Compare the two. Get the charges explained to you in Euros and Cents. If someone is talking to you in jargon, tell them to stop talking jargon and explain it to you in English. If the ongoing charges will be higher after you transfer, or if there's a charge for transferring (at either end of the transaction) make sure you know why you're paying this charge and what benefit it is to you.

What are the fund choices before and after the transfer?
Find out what fund(s) your pension fund is currently invested in. Find out the choices available if you transfer. Do the fund choices suit you? Do you understand them? Don't transfer your money into something you don't understand.

In particular be aware of the risk profile of your pension funds. Get your own risk profile measured and make sure they match. Some people are disappointed with their pension fund because the risk level of the fund doesn't match their own. If you're a very risk-averse person and you're in a high risk pension fund, you'll be unhappy when it dips in value along the way. Or if you've a high tolerance for risk and you're in a low-risk pension fund, you'll be disappointed because the pension fund is only growing very slowly, if at all.

If such a transfer is being proposed to you by an intermediary, before you sign anything ask them to detail why the proposed transfer is of benefit to you making specific reference to the above five questions.

Liam D. Ferguson
 

RainyDay

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Liam - is there a risk issue around consolidating all your pension eggs into one basket?

I'm thinking about the possibility of a catastrophic collapse of one of the large pension providers, maybe something arising from fraud or corruption. Are you better off spreading your bets around a few providers?
 

LDFerguson

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Liam - is there a risk issue around consolidating all your pension eggs into one basket?

I'm thinking about the possibility of a catastrophic collapse of one of the large pension providers, maybe something arising from fraud or corruption. Are you better off spreading your bets around a few providers?
The larger pension companies - the "High Street " names e.g. Irish Life, Zurich Life, New Ireland, Standard Life etc. - are all required to maintain minimum solvency margins so I would reckon that the likelihood of the collapse of one is fairly small. It would most likely be sold as a going concern without loss to the policyholders.

Having worked in one of the life & pension companies about a century ago, the larger ones do have chains of command that would make fraud or corruption somewhat difficult to carry off without an entire team of senior managers being complicit.

That said, I'm not so naive as to think it couldn't happen. So yes, I think that while the likelihood of your losing your pension fund due to fraud is remote, if you want to protect yourself from it then spreading the fund across several providers will do that.

If your pension funds are in several different actively-managed funds, there's also an argument in favour of keeping them separate. Despite the marketing blurb, it's impossible to know which actively-managed fund is going to outperform its competitors in the future, so having a few reduces fund manager risk - the risk of choosing an underperforming fund manager.
 

RainyDay

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Thanks for the clarification

The larger pension companies - the "High Street " names e.g. Irish Life, Zurich Life, New Ireland, Standard Life etc. - are all required to maintain minimum solvency margins so I would reckon that the likelihood of the collapse of one is fairly small. It would most likely be sold as a going concern without loss to the policyholders.

Having worked in one of the life & pension companies about a century ago, the larger ones do have chains of command that would make fraud or corruption somewhat difficult to carry off without an entire team of senior managers being complicit.
I suppose I was thinking about something like the recent RSA/123 debacle. I don't think there was any suggestion that policyholder funds were affected here, but if the same thing happened with a UK or German subsidiary, the impact would be much much larger, and could have a catastrophic effect.
 
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