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Question: I was made redundant and have decided to take early retirement at 60. I have taken out the tax-free cash lump sum from my defined contribution (DC) pension accounts and have roughly £250,000 in two pots. I am not drawing on either. The former has gone into a drawdown and I pay 0.45 per cent fees but it’s fairing better and the latter is staying where it was with 0.29 per cent and not performing as well. Should I combine them? Also, as an aside, from April 2027 my kids would have to pay inheritance tax if I die with that £250,000. What can I do to reduce inheritance tax? I need the money I currently have until I buy a house so gifting now is not an option – what are the alternatives?
Answer: Being made redundant can force big financial decisions much earlier than planned, and taking early retirement at 60 often brings a mix of relief and uncertainty.
In this case, tax-free cash has already been taken from defined contribution pensions, leaving around £250,000 split across two different pension pots. Neither is being drawn yet, but the intention is to simplify things by potentially consolidating them into a single arrangement.
That naturally leads to a comparison of charges. On the face of it, paying 0.29 per cent with one provider versus 0.45 per cent with another feels like a straightforward decision, particularly when the cheaper option also appears to be performing better.
One of the providers you have, SEI, is an investment platform and asset manager often used by advisers, known for its centralised investment approach and competitive pricing rather than being a household-name pension brand. The other, Aviva, is far more familiar to most savers. But comparing these two purely on headline cost risks missing the bigger picture.
This is where many people fall into the trap of comparing only what’s visible at the top. Choosing between pension arrangements is a bit like judging a wedding cake by the icing alone. Charges sit right at the top, easy to see and easy to compare, but the real substance lies in the layers underneath. With a large provider like Aviva, it’s not just about “what funds Aviva offers” in general.
Aviva runs hundreds of different pension schemes, and the range of investments available to you depends entirely on the specific scheme you are in. Some give access to a wide and flexible fund universe, others are far more restricted. Until you know exactly which scheme you hold and what investment universe it allows, it’s impossible to say whether consolidating or moving elsewhere would improve or limit your options.
SEI can be attractive from a cost and governance perspective and, for some people, offers a simpler and cheaper structure. That doesn’t automatically make it the right home for all your pension savings. Performance differences over short periods are often driven by asset allocation rather than provider quality, and moving purely on recent returns risks locking in yesterday’s winners.
Before combining pots or transferring, it’s worth stepping back and asking what investment approach you actually need for this phase of life, how much flexibility you want and whether either provider restricts that in ways that could matter later.
The inheritance tax concern also needs careful unpacking. Pensions are not suddenly taxed across the board. From April 2027, defined contribution pensions are due to be brought back into the estate for inheritance tax purposes.
Tax is only payable if the total value of the estate exceeds the available nil-rate bands. If it does, inheritance tax is paid by the estate as a whole, not automatically deducted from the pension in isolation. The assumption that children would face a tax bill regardless isn’t correct.
There is also a bigger issue hiding behind the tax question. You’ve been clear that this money is needed during your lifetime, at least until you buy a house, which means aggressive inheritance tax planning may simply not be appropriate. Giving money away or locking it up can look neat on paper, but becomes a problem if circumstances change. Early retirement brings a long-time horizon, and it’s easy to underestimate future costs, particularly later-life care or periods where spending spikes unexpectedly.
This is where proper cash flow planning comes in. Rather than focusing narrowly on charges or future tax, the priority should be understanding how long your money needs to last, how it might be drawn over time and what happens if markets disappoint or costs rise.
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Stress-testing plans for care fees, health issues or prolonged market downturns can quickly reveal whether there is genuine surplus wealth or whether this pension needs to work hard for you first.
That’s why this is a moment where good financial advice can be particularly valuable. You’re at a pivotal point, moving from building wealth to relying on it, and decisions taken now could shape your standard of living for decades.
Getting the structure, investment approach and tax position right at this stage can have a far bigger impact on quality of life than small differences in headline charges.
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