two pensions - what to do?

[kaweco]

Hi everyone,

Would appreciate advice! I'm finally trying to get a little more responsible with my finances. I'm a freelancer but have recently arranged a pension scheme through my union - it is a stakeholder pension with Aviva. As my work is on a contract by contract basis, employers will make contributions per job, if that makes sense.

I used to work in an office, and have another pension - a 'money purchase' pension, also with Aviva. There's a relatively small amount in there (35K) but obviously it's just sitting there and nothing has been put into it for years.

I am unclear about these different types of pensions and don't know if it makes sense for me to put what's currently in the old work pension into the new one. I know it's 'allowed' to have more than one pension, but is there any advantage to this? Can anyone advise? Thanks so much.

They both sound like the same kind of pension. If one was a defined benefit pension you would want advice before transferring, and probably not do it, but doesn't sound like that's the case here.

For the pensions you have I would look at the fee you are being charged and the returns you are getting. My pension from my previous employment is doing better than my new one and has lower fees so I'm choosing not to move it. Additionally check if the new scheme accept transfers in (most do).

Stakeholder pensions were introduced for people on lower incomes so they could stop and restart paying in at any point; contribute smaller amounts each month (£25+); are government regulated with a cap on fees (about 1.5%), and no transfer fees.

Disadvantages -
1.5% charge is actually quite high (I think Aviva charge 0.75% for the default work pension) Compare this to somewhere like a Vanguard SIPP (0.15%). Over time this can make a considerable difference to the performance of the fund and how much you get back.

The Aviva Stakeholder pension has a VERY limited range of funds, many of which seem to perform poorly compared to a low cost index tracker. Using their website to assess fund performance is possible but not at all easy.

I'm not a financial adviser, so you must do your own research.

In your situation I would do probably the following:

• Use the Aviva Stakeholder for employer contributions only, or put in the minimum employee contributions possible (unless they match your contributions).
• Do not stick with their default option if it's possible to choose - it is rarely a good value option. Research all the funds available within the Aviva Stakeholder and compare their track records. It will take a bit of time, but it is worth the effort, and could boost the growth of your fund considerably.
• Transfer your existing older pension to a SIPP (self invested personal pension) with a different low-cost provider and research your own funds/trackers.
• When you leave your employment with the current employer, transfer your Stakeholder out of this pension (provided you lose no additional benefits) into the low cost SIPP.