If you’re an Australian living in the UK, here’s why it may be wise to consolidate your pensions

Category: News & United Kingdom

According to Zippia, the average employee stays with their employer for just over four years. As a result, you could easily have 12 jobs during your working life.

Many of these jobs will have pension arrangements and, in addition to any workplace scheme, you may also set up a personal pension plan.

Given that, it’s easy to see how even in just a decade or so of living and working in the UK, you could have several different pension pots when you come to either retire here or move back to Australia.

Read on to discover four good reasons why consolidating your pension could make sense.

1. Having one arrangement makes it easier to track what you’ve got

An important advantage of consolidating your pensions is that keeping track of one arrangement is often much easier than managing a series of pots with different pension providers.

Each of your pensions will provide an annual statement. Some will be online, and some will arrive in the post, along with other correspondence about your plan. If you have a series of different arrangements, that could mean a lot of paperwork to keep track of.

Then there’s the complication of making sure all your details are up to date, such as changing your address if you move. It’s easy to lose the details of a pension and potentially misplace some of your retirement savings along the way.

In fact, the Association of British Insurers (ABI) estimates that almost 3 million UK savers have “lost” pensions worth £26.6 billion.

Probably most importantly, having a series of pensions can also make it more difficult to understand if you’re on track for retirement. This is especially true if you also have retirement funds back in Australia that you will need to take into account.

2. A single arrangement helps you manage your income in retirement

As well as making your retirement savings easier to manage during your working life, fewer pensions can also be easier to manage once you retire.

Pension Freedoms legislation gives you ultimate flexibility around how and when you draw from your retirement savings. So, rather than having to juggle withdrawals from several different providers, you’re likely to find it far easier to manage your retirement income if you have a single pension plan.

Having one pot to manage throughout your retirement years will make it easier for you to keep track of your savings and the income they’ll deliver.

3. Consolidation can reduce the charges and fees you are paying

Research from the Institute for Fiscal Studies found that some savers could lose thousands of pounds if they don’t move older pensions to ones that offer better value for money.

Each pension provider will deduct charges from the value of your plan. These could include a management fee, as well as an investment charge.

Charges and fees can vary and will be applied regardless of whether you are contributing to the plan, or it is lying dormant.

Additionally, depending on the type of arrangement you have, you may also pay platform or service charges.

High charges and fees can reduce the value of your pension. By consolidating your arrangements with a provider with lower fees, you could save yourself a considerable amount of money.

4. A consolidated fund can streamline the transfer to an Australian super

Clearly, if you are planning to return to Australia to retire, there are good reasons why you will want to consider transferring your UK pensions to a superannuation fund.

In a recent article we outlined some of the reasons why you could benefit from doing this, and it’s  worth you taking a look if you do plan to return at some stage in the future.

You should be aware that you can’t transfer your pension to Australia until you’re 55, rising to age 57 in 2028. However, even if you aren’t yet old enough, or are not in a position to transfer, consolidating your pensions now could help you maximise your UK pension fund in the meantime.

The best option may be to use an interim vehicle such as a SIPP (self-invested personal pension).

Not only will this mean all your arrangements are in a single plan, which will streamline the eventual transfer process, but there may be other additional benefits. For example, you could select to invest your pension savings in Australian dollars.

Additionally, when you are transferring money from a UK pension to Australia, such transfers are classed as “non-concessional”. This means there are limits to the maximum you can transfer in any one tax year to avoid incurring an Australian tax penalty.

As of July 2024, the annual non-concessional contribution cap will be AUD $120,000.

Having all your accrued UK pensions in a single arrangement will make it easier to manage the staggered transfer process and continue to invest assets remaining in the UK.

Consolidating pensions may not be right for you

It’s important for you to be aware that your particular circumstances, or the type of pensions you have, may mean that transferring all your funds to a single arrangement may not be the best course of action.

For example, if you have a defined benefit (DB) pension – sometimes known as a “final salary scheme” – this will provide you with a guaranteed income linked to inflation throughout your retirement, as well as a potential pension for your spouse or civil partner.

It is very possible that you will not be able to provide a similar level of guaranteed income if you transfer your money out of the DB scheme.

There are also some pension arrangements that will provide a guaranteed annuity rate when you retire or allow you to start drawing your benefits prior to the current minimum age of 55, rising to age 57 in 2028.

Depending on your retirement plans, both of those could be valuable benefits that you may not want to forgo.

So, before you make any decisions about consolidating your pensions, make sure you understand the benefits you could be giving up.

Get in touch

If you have any questions regarding your pension arrangements, especially if you are planning to return to Australia at some stage, please get in touch with us.

Please note

The value of your investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances. All contents are based on our understanding of ATO and HMRC legislation, which is subject to change.