Will I lose out if I consolidate my pensions?

Will I lose out if I consolidate my pensions?

I have four private pensions including my current employer pension. How do I go about consolidating them all into one easily manageable pension and what are the financial implications of moving them?

Helen Morrissey
Wed, 11/13/2019 – 16:25

From
MG/York

While consolidating your pensions might make them easier to manage, there are several points you need to consider before you do so.

Each pension could be set up differently with different charges and you might find that you incur exit fees when you combine pots.

You could also potentially be giving up valuable benefits by consolidating them. For instance, some older pension products have guaranteed annuity rates attached to them. These can be significantly higher than the rates currently available, so be sure you will not throw away this valuable benefit. Some older pensions, for example, can include the ability to access a pension before the age of 55, while others can allow you to withdraw tax-free cash in excess of the current 25% limit.

You have not said how big your pensions are, but there are various small pot privileges that you could lose by merging your pots. For instance, if you are still saving into your pension and take taxable cash from a pot worth more than £10,000, then you could fall foul of the money purchase annual allowance, which significantly reduces the amount you can contribute while benefiting from tax relief.

In addition, while accessing a pension generally counts against your pension lifetime allowance (currently £1,055,000), you can take up to three pensions of under £10,000 without it impacting on your allowance.

I would recommend speaking to a financial adviser before making a decision to consolidate to make sure you are not throwing away valuable benefits or incurring tax charges. To look for an adviser in your area, visit Unbiased.co.uk.

It is worth checking because in some cases there are valuable savings to be made by consolidating pots if you can move money from more to less expensive providers.

Helen Morrisey, pension specialist at Royal London

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“Broken” system of council tax collection is pushing households further into debt, warns Citizens Advice

“Broken” system of council tax collection is pushing households further into debt, warns Citizens Advice

Councils are receiving just 27p for every £1 bailiffs recover

Stephen Little
Wed, 11/13/2019 – 10:26

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The “broken” system of council tax collection is pushing people further into debt, Citizens Advice warns.

It says that the outdated system of using bailiffs by local councils to collect council tax is making it harder for people to get their finances on track and is in urgent need of reform.

Currently, when people miss a single council tax payment they become liable for the full year’s bill, while the rules also push councils to use the court process to collect arrears, the charity says.

A Freedom of Information (FOI) request by the charity shows that last year, for every £1 referred to bailiffs for collection, councils received just 27p in return.

It also found that bailiffs cost 53p for every £1 they recovered, with most of these costs paid by people in financial difficulty.

Citizens Advice says that this is money that could otherwise be used to pay back arrears.

The research also revealed that bailiffs failed to collect an average of £2.5 million per council last year.

While over the last five years, on average, bailiffs only collected 30% of the arrears they were sent.

Reform

Citizens Advice says the regulations governing the collection of council tax limits the ability of local councils to collect debts in a fair way and is calling on the next government to reform these rules.

Gillian Guy, chief executive of Citizens Advice, says: “Council tax debt is now worryingly common but the collection system is broken. It doesn’t work for the people who are driven further into debt and it doesn’t work for councils or the taxpayer who are seeing millions of pounds go to waste each year.

“The next government has a real opportunity to fix the outdated regulations that push councils to use ineffective collection practices and protect people from spiralling further into debt when they fall be-hind on their council tax.

“It must give councils the powers to take a more flexible approach to collecting arrears and put an end to punitive processes such as charging a full year’s bill after a single payment is missed.”

Councillor Richard Watts, chair of the Local Government Association’s resources board, says: “Councils have a duty to their residents to collect taxes so important services, like caring for older and disabled people, protecting children, collecting bins and fixing roads are not affected.

“Bailiffs should only ever be used as a last resort by councils. Before it gets to that stage, people will have been encouraged to apply for financial support by their council. Anyone having trouble paying their council bills should get in touch with their local authority for financial help and advice as soon as possible.”

Reducing your debt

A good way to get control of your finances is by setting a budget.

Once you know how much you have coming in every month and what you need to spend you can work out how to deal with your debt.

Make sure you prioritise the most important debts first such as mortgage payments as you could lose your home.

The interest rate on credit cards can be expensive, so it is also a good idea to pay this off as quickly as possible.

Council tax is another important bill to keep on top of. You could be sent to prison for up to three months if you fail to pay it.

Balance transfer cards allow you to consolidate all your debt in one manageable payment. Transferring over to a credit card that offers 0% interest on purchases can make debt repayments easier.

Some of the best deals will allow you to borrow for more than two years, giving you extra breathing space to pay off your debt.

If you are worried about debt you should seek help from a debt advice charity such as Citizens Advice, StepChange or National Debtline.

For more, read our guide to how to get out of debt in 2019.