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Alison writes: I am 55 and have a pension savings of £160,000. This is spread across four pots, and I am currently contributing into a fifth. I would like to reduce my hours or retire at 60 if I can afford to? Should I also consolidate my pensions into one – what’s the best option going forward.
Alina Khan, The i Paper’s money coach reporter, responds… After reading your letter and some back-and-forth emails exchanged, you explained that you thought you had five different pension pots, all of which were on defined contribution (DC) schemes
DC pension pots are the most common type in the private sector, and mean that you have money invested, which you draw from in retirement or use to buy an annuity, which gives you an annual income.
You can access your pot from 55 – so any time from now – but if you use drawdown, then it’s your responsibility to make sure you have enough cash to last throughout your retirement, as once your money is gone, it is gone.
You need to be aware of this, as according to industry living standards, a moderate retirement in the UK, requires roughly £31,700 per year for a single person. Even a basic retirement requires £13,400 a year.
If you want to retire at 60, you will have to support yourself from your private income alone for several years, as you won’t receive your state pension until you are 67.
Alasdair Walker, managing director at Optimum Path Financial Planning, said that “retiring seven years earlier than your state pension age will carry a significant cost to potential income.”
“Why do you want to retire? What are you prepared to compromise on? You have already said that she would be prepared to work part-time, but for how long? How many hours a week? In the same job or a different one?” he asked.
We next took a look at how much you have saved, and how long it might last.
You thought that all five of your pensions were DC pots, but the good news is, one is actually a different type of pension – known as a defined benefit (DB) scheme. And it’s more generous than you thought.
These DB schemes provide a guaranteed income for life, so you don’t need to worry about how long you have left. Yours is because you worked in local government, which runs one of these schemes.
You thought you had £4,952.70 saved in this pension, but the scheme will actually pay you that much per year in retirement.
However, if you want to retire at 60, you will get quite a lot less than this, as the scheme’s set retirement date is based on the state pension age.
All this considered, Walker said one approach you could consider would be to move to part-time work at age 60, and try to live on that lower pay cheque each month.
“This might ease the transition into retirement, give pensions more time to grow, and get her closer to that state pension age, when you will receive a significant income uplift,” he added.
You should also check your state pension entitlement, topping up missed years represents great value and is often missed by people.
You need 35 qualifying years for the full state pension, which is £230.25 a week for the 2025/26 tax year.
Walker said: “It generally costs around £1,000 to add an extra year of state pension entitlement, up to the maximum 35, and is ‘paid back’ by additional state pension in two to five years.”
There are also several things you should consider when you decide whether to consolidate your pensions into one. The most important factor is the DB pension you have. This is not like the others, and Walker says combing this with DC pensions is often not a good idea.
He said: “This is not like the rest of the pensions – it’s a defined benefit pension, and there is no “pot of money” for her to transfer.
“The choice to give up a valuable guaranteed income for life like this is something that should be carefully considered, and in many cases, it is not a good idea.”
Rules set out by the financial regulator mean you would need to take financial advice from a pension transfer specialist to even consider this option, and the cost may be high.
For the others, consolidating them into one pot could reduce your admin hassle and potentially reduce ongoing costs – a financial adviser can help you with this, but you need to look at whether each of the schemes have guarantees that you would lose if you transferred them.
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If you wanted to find out more about your pensions, Walker laid out key questions you need to ask your pension providers.
They are:
What are the costs associated with my pension? How is my pension currently invested? What investment options can I choose, other than the current one? Are there any valuable guarantees associated with my pension that would be lost if I transferred it? Is the current value different from the transfer value, and is it possible for those numbers to be different?I hope you find this useful and hope you enjoy your retirement when it comes.
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