Case study: should I combine my pension?

Every year, we conduct hundreds of financial reviews for our clients and prospective clients – and the most common issues we come across focus on savings plans, protection, receiving a lump sum and pensions. In a three-part series, we’ll explore these themes through real-life case studies and present the recommendations we would commonly make in each scenario. In our first two case studies, we looked at ways to secure your family’s financial future and what to do after receiving a large lump sum. In our final case study, we consider how to simplify your pension landscape. 

Pensions can sometimes feel intimidating, but as with everything knowledge is power. Today, people move employer more frequently – and so, they are left with several pension pots, like our client Joan¹, a senior executive in a blue-chip global company.

From our early conversations, it was clear that Joan had several pension pots that she had not looked at or reviewed for quite some time. What’s more, she had share options that had been accumulating. So, for us, we wanted to focus our efforts on her retirement planning and a share option strategy.

How to consolidate multiple pensions

Joan’s pension arrangements were complicated: two of her pensions were Irish and one was held in the UK. And so, Joan wanted to understand the pros and cons of consolidating her pensions or keeping them separate.

In some instances, keeping pension policies separate is optimal and in other cases, it is not.

To begin, we reviewed Joan’s three pension policies, looking at how they were invested, their investment performance as well as how much she pays in charges for each policy.

Each pension policy was invested differently, and in turn, had differing levels of risks and different investment strategies. One policy had a very attractive pricing policy – and its investment performance was strong too. And so, we advised Joan to maintain this pension as it was. We then consolidated the other pensions to reduce her fees and align the investment approach.

We are often asked how easy it is to consolidate a UK pension – for Joan, doing so didn’t cause any issues. In general, most people under the age of 70 and resident in Ireland would be eligible to transfer their pension from the UK back to an Irish pension structure without affecting their Irish pension arrangements.  However, specific advice would be required for considerations about tax implications for the treatment of the lump sum. And although the process is reasonably straightforward, there is some additional paperwork and UK pension rules that must be observed in Ireland.

Putting a share option strategy in place

Joan also had a stock option pot that was building up: she’d received annual share options that vested after three years but was initially reluctant to sell them.

Regardless of your affiliation to your employer, we would recommend selling down one-third of the vesting options as they become available to sell.  As an investor, it’s our job to ensure you hold a well-spread group of assets across the globe. So, some years selling them will work in your favour – and other years it will work against you. But by doing this each year, you will diversify your finances, thereby reducing risk – and that’s always a good thing.

After understanding the benefits of having diversified exposure to a bigger basket of companies and sectors, Joan did sell down one-third of the vesting options. However, she still had significant exposure to her company in the remaining vested shares. She may decide to increase the rate of disposal as part of a plan in the future.

So, as you can see in Joan’s example, it can be beneficial to simplify your pension landscape – and when you need that conversation, we’re here to help!