Pension Consolidation: Six Pensions Worth Keeping

Pension Consolidation six types of pensions

Many people find that they have amassed a number of Pension Plans over a career that has spanned multiple companies. More and more people are choosing to consolidate their old Pensions into one scheme, as this can be easier to manage while providing a greater level of convenience and flexibility. There can also be alternative providers offering a better level of service, flexibility and value for money.

However, some Pension Schemes are best left where they are. Transferring your Pensions is not a step to be taken lightly or without professional advice. Here are six Pensions that we believe are typically worth keeping.

Pensions with Guaranteed Annuity Rates

If you have a Pension with a Guaranteed Annuity (RAR), your retirement income is guaranteed for life, and the scheme is likely to have a higher rate than other schemes available on the open market. Therefore, keeping your current Pension and buying the Annuity through your existing Pension Scheme provider could well be the better option.

A GAR Pension can be pretty inflexible, though and may not work in the best way, as the Annuity Income paid can be hard-wired to the plan. It may be possible to amend the basis of the Annuity. However, the initial rate offered could be lower.

  • If your GAR Pension is worth £30,000 or more, you will have to take financial advice before you can proceed with a transfer.
  • If you have a non-GAR Pension, you can usually get a higher annuity income on the open market.

Contact your Pension Administrator if you are unsure if your Pension is GAR Pension.

Defined Benefit Pensions

Defined Benefit Pensions offer a guaranteed income upon your retirement age, with the Pension paid usually increasing each year. They are more commonly used by employers running large companies or in the public sector. Typically, they will continue to be paid to your spouse, civil partner, or dependants, often upon your death; however, this is often at a reduced rate.

You may also find that your Defined Benefit Pension as an Additional Voluntary Contribution (AVC) pot linked to the scheme, providing a greater degree of flexibility to access tax-free cash. Check with your Pension provider for details of any AVC schemes they have available, as this can be a great way to increase your retirement fund.

With some pension scheme members being offered 20 or 30 times their promised income to trade in their policy for a cash lump sum, it is hardly surprising that many are rushing to transfer. But again, it is not a decision to take lightly.

Any good Financial Advisor will always bring you back to focus on what the Pension is there for in the first place, which is to provide you with a decent standard of living throughout retirement.

This means it is essential to get advice; indeed, if your transfer value is £30,000 or more, it is a legal requirement!

It is possible that a transfer may make sense for people who are not married – who would not get the benefit of a spouse’s Pension – and those who are ill or unhealthy and are unlikely to have a long retirement. The move would also be less risky if you had other sources of retirement income.

Pensions with Guaranteed Fund Returns

Often called a Guaranteed Drawdown, a Pension with Guaranteed Fund Returns, your Pension pot is invested in various types of assets to earn a return, with you drawing an income from that pot. The benefit of these Pension types is that your income may increase in line with the performance of the assets it is invested in. However, unlike Pensions with Guaranteed Annuity Rates, this income is not guaranteed.

Pensions with Guaranteed Fund Returns can offer a greater degree of flexibility to you; for example, you can change how much you withdraw from a Drawdown Pension, choose to spend it faster or slower or pick from a number of drawdown option that best meets your needs.

Your income level from a Pension scheme like this will be dependent upon the performance of your investments, the speed you want to spend your Pension Pot and how much tax you will have to pay.

Pensions with Guaranteed Fund Returns can offer security for many holders, although the returns may not be very high. It is worth considering what is most important to you before transferring: security or better returns. We would always recommend that you speak to your scheme provider, as well as a Financial Planning expert, before making any changes.

Old Company Pensions & Section 32 Plans

Suppose you have a pension containing benefits built up prior to April 2006. In that case, the scheme may have a provision that allows its members to take more than the maximum tax-free cash entitlement of 25% that is typical with the majority of most Pensions.

You may also hold a Section 32 Pension Policy, sometimes referred to as a Deferred Annuity Plan. Pension Section 32 is a policy or contract bought from an insurance company using funds from a registered Pension Scheme that provides for an annuity at some point in the future – a deferred annuity contract. It’s called a Section 32 policy as this was the section in the Finance Act 1981 that referred to deferred annuity contracts. It can also be referred to as a ‘buyout’ policy, as the member’s benefits rights have been ‘bought out’ of the registered pension scheme. The benefits can be secured by one or more policies or from one or more insurance companies.

Your Section 32 Policy may have a Tax-free cash element similar to that of any other Registered Pension Scheme, unless you were entitled to a larger lump sum under your previous scheme as at 5 April 2006. If this is the case, the tax-free cash would be the value of the lump sum you would have been paid had you become entitled to it on 5 April 2006. This figure is subject to the maximum tax-free cash allowable under HMRC rules before 6 April 2006 and assumes that you are in good health and that no reduction for early payment applies.

While the enhanced tax-free cash elements of such policies can be very appealing at first sight, caution is needed, as it doesn’t automatically mean that a transfer is or is not a good choice. The decision on the best approach should depend very much on the size of the enhanced tax-free cash amount, the forecast growth prospects of the scheme, and the retirement options the scheme makes available to you, which can often be limited. So your first action should be to contact your provider for a Pension Statement that should explain your options and detail any protected benefits you hold.

Most modern Pensions allow you to take benefits from age 55, which rises to 57 from 2028. However, some older Pensions may have an enhanced benefit that allowed you to take a benefit earlier than that. So, these Pensions may meet your needs far better than transferring to a new scheme.

Finally, while certain conditions need to be met, you may hold a policy that enables you to retain the enhanced tax-free cash entitlement or protected retirement age if and when you transfer them. Ask your Pension scheme provider if this forms part of the policy you have and speak to a Financial Planning professional before making any final decision.

Pensions with large exit penalties

 Many older Pensions have large charges and exit fees built into their terms & conditions for transferring, including market value reductions if you’re invested in a ‘With Profits’ fund. However, the majority of modern Pension Plans charge little or nothing to transfer.

Personal or Stakeholder Pensions are the exception to the rule here, though, with those aged 55 or over having the added protection of a cap of 1% on early exit fees. This legislative change prevented those who had reached 55, but not the ‘retirement age’, agreed with their pension provider from being unfairly penalised.

This has freed many Personal or Stakeholder Pension Scheme holders who found their existing policy provider was failing to provide great service, quality and value for money, as they can now transfer to a provider at a lower cost. This might be of particular interest if your current provider doesn’t offer access to all the main retirement options – drawdown, lump sums and annuities. One note of caution: a low-cost transfer is usually only available prior to taking any income or a lump sum.

Ongoing employer contributions

All employers must provide a workplace Pension Scheme. This is called ‘Automatic Enrolment‘.

Your employer must automatically enrol you into a Pension Scheme and make contributions to your Pension if all of the following apply:

  • you’re classed as a ‘worker’
  • you’re aged between 22 and State Pension age
  • you earn at least £10,000 per year
  • you usually (‘ordinarily’) work in the UK

Originally introduced under the Pensions Act 2008, Auto Enrolment began taking place within larger organisations in 2012. There were various phased staging dates, with all workers being automatically enrolled in an employer workplace pensions by February 2018.

If you find that, having reviewed your Pension Scheme statements, you decide that the scheme your employer is using is not delivering what you hoped or need and that you are considering transferring to another scheme. It is vital that you speak to your employer first, as you may find that they are not willing to pay their element of the Pensions contribution into your new chosen scheme. If this is the case, it is usually best to wait until you leave their employment before deciding to transfer so that you continue to collect the contributions in your current scheme.

If your provider doesn’t allow for redirected payments, you might consider having the best of both worlds by transferring just part of your Pension, thus keeping the benefits of your employer Pension and your new scheme.

Again, before any hasty moves to another provider, check what you are allowed to do under the terms of your existing Pension scheme with the provider, and your employer, ensuring that you check if any fees apply and that you won’t lose any valuable benefits or guarantees. Then seek professional help and advice to protect your retirement income.

Professional Advice & Support

Our Pension Advisors have been helping Clients with specialist Pension Advice for over twelve years. We can arrange all sorts of retirement solutions to meet your needs, including a guaranteed income for life (Annuity), income for a fixed term (fixed-term Annuity), flexible access to your money (drawdown), or a combination of these.

Call us on 01489 877547 to book an Initial Meeting or fill out our Contact Form to request a callback.

Join our Free Pension Planning Webinars | Redwood Financial

Check out the Redwood Financial Freedom Health Check. Answer 22 questions to see how you can improve your financial freedom score. This Health Check has been developed to quickly and painlessly produce a financial score based on your answers. In under 3 minutes, you will generate results with a tailored action plan on how to improve. No gimmicks, no number crunching, just some simple yes/no questions to set you off on your financial clarity journey!

Jasmine Lambert Chartered Financial Planner
Jasmine Lambert

Jasmine is the Managing Director and a Chartered Senior Financial Planner at Redwood Financial. She helps clients manage and grow their wealth and protect their estate. Jasmine also provides expert advice in our FREE Redwood Webinars, where you can learn more about Wills, Trusts and Estate Planning.

Redwood Financial is one of the south’s leading Investments, Pensions, Wills, Trusts & Estate Planning providers and we are dedicated to helping families to grow, protect and enjoy their wealth. With our unrivalled knowledge of Estate Planning, Lasting Powers of Attorney, Probate, Pensions, Savings & Investments, we can advise on any situation.
FREE Public Webinars
Join one of our FREE Public Webinars on Wills, Trusts & Estate Planning.
Contact Us
Do you have a question you would like to ask us? Please complete our website contact form:
This website uses cookies to ensure you get the best experience on our website. See Cookie Policy for info.