Can I Take a Cash Lump Sum From My Final Salary Pension?
Question asked by Mr P Hill
I’ve had a number of different jobs over the years and have accumulated lots of pension pots in different places.With auto-enrolment now enrolling you in a workplace pension at every job you have, I’ll probably end up with even more pensions before I retire.
How many pensions can I have in total? Are there tax implications for having too many pensions?
You’re right about auto-enrolment — lots of people will probably soon be asking if there’s a cap on the number of pensions you can have.
Auto-enrolment makes it a requirement for employers to provide their employees with a pension as the government looks to stave off a retirement savings crisis.
However, with few people sticking in one job for life, it’s likely lots of people will end up with multiple pension pots spread across different pension providers.
First of all, to put your mind at rest, HMRC won’t be coming after you for having too many pensions. There is no limit to the number of pensions a person is allowed.
IMPORTANT NOTICE 🧐
As of the Spring Budget 2023, the UK chancellor announced the abolition of the pension lifetime allowance (LTA). This will take effect from 6 April 2023.
It’s important to note however, the Labour party have announced that if they were to be elected the allowance may be reintroduced in the future. If this occurs, we will update our records to reflect any changes. The information on this page is based on the LTA pre 6 April 2023.
Providing you don’t save more than your lifetime allowance into all of your pension funds combined — currently set at £1,073,100 — you won’t be penalised by the taxman for having lots of pensions. The government actually offers a pension tracing service so you can find your lost pensions.
While you can have as many pensions as you like and still most likely be safe from HMRC, the question you should probably be asking is are you being penalised by pension providers for having too many pensions?
Not that pension providers are actively looking to penalise you for having multiple pension funds, but the fact is that each pension pot incurs separate investment and management fees. Some may even charge an inactivity fee if you’re not longer paying into the pot. You may therefore gain economies of scale by consolidating your pensions into fewer funds.
Those are tricky enough questions to answer when you’ve only got one pension, let alone several pension pots spread across lots of pension providers.
In such situations, receiving pension transfer advice can turn your pensions into fewer, easier to manage pots. Not only will you cut management charges, but you’ll be able to better see how they’re performing, and whether they can give you the retirement you’ve been planning for.
If you’re thinking about consolidating your pensions, the first step is to ask for pensions advice.
There are a number of pitfalls you wouldn’t want to fall foul of during the pension consolidation process, including the fact that some pension providers might impose exit charges.
You’ll also need to be wary when consolidating older pension plans — many pensions sold in the 1980s contained a generous guaranteed annuity rate (GAR), which you’d lose if you transferred out of that particular pension scheme.
To save you worrying about this, our expert pension advisers are equipped to help. Why not give one of them a ring on 02084327334? They’re available to discuss all of your pension consolidation needs.