Savers are being warned that merging workplace pensions into a single pot ahead of a rule change next April could prove a “costly and irreversible mistake”. The warning comes as pensions are set to be brought into the scope of HMRC inheritance tax under plans introduced by Rachel Reeves and overseen by her successor as Chancellor, Andy Burnham, alongside John Healey.
Consolidation risks highlighted
With the rule change looming, many savers are tracking down old workplace pensions and combining them into one pot. While this could make things easier for grieving relatives, financial experts caution that consolidation is not right for everyone.
Alasdair Walker, of wealth planners Optimum Path, said there were “compelling reasons” not to consolidate. He warned: “You could be paying higher fees for 20 years or more. Some people could give up products with guaranteed annuity rates, potentially leaving them with less in retirement.
“Others might lose the right to access their funds at 55, pushing their retirement back two years when the Government raises the minimum pension age to 57 in 2028. These irreversible choices could potentially cost tens of thousands of pounds throughout retirement.”
Beneficial features at risk
Andrew King, of Evelyn Partners, agreed that consolidation was not the right decision for every pension saver. He said: “Consolidation could mean lose out on beneficial features like a protected lower retirement age, enhanced tax-free cash and beneficial features like guaranteed annuity and growth rates.
“There’s also the possibility that your pension provider could get into difficulty and your investments could of course go down at any time.”
Provider capacity concerns
Becky O’Connor, of PensionBee, highlighted potential operational issues. She said: “If more people are looking to consolidate ahead of the change next year, the burden on providers could increase, causing longer delays. Someone could have their financial affairs in perfect order, only to find their pension is stuck in transit when the rules change.
“Savers cannot plan effectively if the system cannot move at a reliable speed.”
The changes, which take effect from April, will bring pensions into the scope of HMRC inheritance tax for the first time, prompting many savers to review their arrangements ahead of the deadline.
