Freedoms have enabled you to make the most of your retirement pot but also added complexity
Thursday 16 May 2019 Author: Holly Black

Pension freedoms introduced in 2015 have given people more control than ever before over their finances in retirement – but they have also created some confusion.

There are a number of different types of pension – you might have more than one – and it is not always clear which is the best option.


The two main types of workplace pension are known as defined benefit and defined contribution schemes. Defined benefit pensions are often referred to as final salary schemes. These tend to be older pension plans offered by big companies and the public sector and they are often incredibly valuable.

This is because they pay an income for life, which is linked to your final salary when you retired and the number of years you paid into the pension, regardless of stock market performance. They are so named because the benefit you get from the pension is clear.

With defined contribution schemes on the other hand, the amount you pay into the pension is very clear but what you will get out of it isn’t. These are now the more common type of scheme and see individuals and their employers pay into a pension over the course of their working life.

How much is accrued over that time depends not just on your contributions or how long you worked but on the performance of the stock market and the investments into which you have saved. At the point of retirement, you can either use the money that has been built up to buy an annuity, giving you an income for life, or keep it invested and drawdown regular or ad hoc sums from the pot.

Regardless of which type of pension you currently save into, the likelihood is that you have a number of pension pots. The concept of a job for life is a rare one these days and the average adult is likely to have at least six different jobs during their working life, and just as many different pension pots.

An obvious first step when you change career is to take your pension savings with you and, if you have lost track of old schemes, to track them down. Steve Webb, director of policy at Royal London, says: ‘If someone has multiple personal pension pots and perhaps some are not performing well or have high charges, then consolidation could be the right answer.’


If all of your pension schemes are defined contribution then this is often a sensible strategy. Consolidating all of your pensions into one scheme can be done quickly and easily, and makes it simpler to keep on top of your savings. All you need to do is fill in a form with your current pension provider, giving it the details of your other plans and permission to move them, and it does the rest.

Usually, the old scheme will sell the investments you hold and put your money into cash, which is transferred to the new provider and then invested.

Sometimes there is the option to transfer your money while it is still invested, known as in-specie, but this might incur additional charges. How long a transfer takes will vary greatly depending on the provider and the technology they use – some transfers can take as little as two weeks while some may take up to 12 weeks.

Transferring a Self-Invested Personal Pension (SIPP) should also be a relatively simple affair. These are pension plans you set up and manage yourself and are often used as a top-up to existing pension savings or by those who are self-employed.

The main details to check when transferring a SIPP are how the charges and the range of investments available compare between the provider you are moving to and from.

The usability of the website or app and customer service are also key factors to bear in mind when you are managing your own investments. In-specie transfers are more widely available between SIPPs but providers may charge per investment you move – AJ Bell Youinvest, for example, charges £25 per investment – which can rack up if you are transferring an entire portfolio.

This may mean that selling your investments and moving the money as cash may be cheaper, however you do risk having time out of the market and the potential of having to buy back your investments at a higher price if they have risen in that period.


Transferring defined benefit schemes is usually more complicated and taking financial advice before doing so is now mandatory if you have assets worth more than £30,000. These older-style schemes are not only more difficult to value but often have valuable benefits attached to them, such as spousal benefits, which you lose if you move the money elsewhere.

Webb adds: ‘It’s worth pointing out that there could also be similar issues regarding valuable guarantees attached to old defined contribution pots. Some older policies will have been sold with valuable guaranteed annuity rates attached to them, for example, which it is often unwise to  throw away.’

Also, worth checking before your transfer any pension is whether the policy has an exit penalty if you transfer the money out, which could eat into your assets.

Ammo Kambo, financial planner at Brewin Dolphin, says other points to consider include the choice of funds available in your old and new schemes, to ensure you can invest the money as you wish, and how the charges compare. You should also check what the options are when you come to retirement, as some schemes might not allow drawdown, for example.

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