Having a clear focus and idea of what you have accumulated in pensions and being able to understand the benefits you are on target for at retirement is vitally important.
One way of getting a clearer picture is to consolidate your pensions.
What is pension consolidation?
Pension consolidation means combining all of your pension pots into one new account.
Over your working life you may work for many different employers and so may build up quite a collection of different pension pots and/or pension schemes.
You might also have personal pensions you’ve set up yourself, especially if you’ve been self-employed. At some point (not necessarily near retirement) you’ll have to decide whether to consolidate them or leave them separate.
Working out the best thing to do will depend on a number of factors.
- What type of pensions they are.
- How much they are worth.
- How well they are being managed.
- Costs and charges.
- Whether they currently have any special guarantees attached.
Here are some of the things to think about and discuss with a pensions specialist.
Should I consolidate my pensions?
Reasons to combine your pensions may include:
- Saving money
- Achieving better growth
- Keeping track of your pension savings
Can I save money by combining pensions?
Most pension accounts will be subject to annual management fees and having several accounts could mean they all have different charges being deducted.
The fees can vary massively between accounts and could include;
- annual account fees
- monthly administration fees
- fund management fees
- advisers or service fees
Our findings show that many people are completely unaware of what charges are being deducted from their pensions.
Combining your pots into the one account with the lower management fees can reduce this kind of waste, but take advice to make sure it’s the right decision.
Some pension providers offer a discount off the annual fees depending on the size of the fund, so by combining your pots you might benefit from this.
Your adviser may also help you find a fund with lower fees.
If you are paying excess fees this could significantly reduce the size of your pot over the course of your working life.
So one little change made early enough could save you tens of thousands of pounds in the long run.
Can I achieve better growth by merging pensions?
Fund performance can be an important factor in deciding whether to combine pensions.
Having multiple pension accounts could result in having a mix of different funds. In many cases these may not of been properly reviewed for many years.
By consolidating your pensions, you can ensure that you have a consistent investment strategy across all your funds.
Identifying the risk that you are prepared to take with your money and making sure the funds match this is a vital part of pension planning.
Is it more convenient to consolidate pensions?
Managing one pension pot is inevitably much easier than handling several.
Managing a pot involves more than just checking the balance once a year.
Most new pension accounts offer full online access and visibility allowing to easily check what is happening with you pension at any time.
You also want to make sure you are invested in the right fund for your risk profile, and this will change as you get nearer to retirement.
Most of all, it will be far easier to access your pension benefits if you only have one pot to worry about.
Combining pensions to keep track of them
When you have multiple pension pots from various providers, you run a much higher risk of losing track of one or more of them altogether.
House moves are notorious when it comes to paperwork getting lost – and if you lose the paperwork, you may not be able to inform pension providers that you’ve moved house.
In this way pensions can get lost or forgotten about.
Can I combine my defined benefit pensions?
If you have a defined benefit pension, you may be offered the option to transfer it into a defined contribution pension (the most common type).
You should think very carefully before deciding to do this.
Such transfers involve trading a guaranteed lifelong income for a finite sum of money in the form of a pension pot.
It is usually a legal requirement to seek independent advice before transferring a final salary pension, as this is a big decision and cannot be reversed.
Are there any reasons not to combine my pensions?
Consolidating your pensions before retirement could be a wise move.
However, there are some circumstances when it may not be the best option.
Make sure you ask an independent financial adviser about what you should do.
Some reasons not to merge your pensions are outlined here.
- Are one or more of my pensions final salary?
As explained above, a final salary (or ‘defined benefit’) pension provides a guaranteed income for life, which is an extremely valuable benefit in an uncertain world. This income won’t be affected by stock market falls, provided that the scheme remains viable, and in the case of scheme failure should be covered by the Pension Protection Fund. However, if the transfer value is quite small, or you are worried about the scheme’s long-term prospects, then ask an IFA whether a transfer might be best.
- Do any of my pensions have guaranteed annuity rates or safeguarded benefits?
Some pension schemes offer a guaranteed annuity rate (GAR), which may enable you to buy an annuity with a much higher annual income that you would otherwise be offered. It may not be clear from your pension documentation whether you have one or not, but your adviser should check for you.
Having a GAR is usually a good reason not to transfer out, as by doing so you would lose it.
- Are there penalties or exit fees for transferring. Check to see whether your pension’s transfer value is the same as its current value.
How do I decide about combining my pensions?
Your adviser will go through all your pension paperwork with you and liaise with your providers, to help you build up a clear picture of your current pension arrangements. The adviser can then give you clear and unbiased recommendation, based on what you want from your retirement.
There is no universal right answer when it comes to transferring pensions, which is why tailored advice is so important.
Remember, you can also top up your pension before retirement by making additional contributions – for example, transferring savings into your pension pot.
Am I saving enough into my pension?
If you want to know whether your pension pot will be enough for your retirement, we can help.
We have cutting edge technology that allows us to accurately forecast what your projected income in retirement will be.
We can identify any shortfalls and provide a plan and guidance on how you could make up any shortfalls.
Alternatively you could use the Pension Calculator provided by Unbiased to see how much retirement income you might receive.
What do I do next ?
For a friendly no obligation discussion around your pensions and to see if pension consolidation could benefit you, please get in touch.
We are offering virtual meetings that can be booked online at a time to suit you.
You can book your initial meeting on the link HERE
Alternatively just give the office a call on 01564 732770 and they will be happy to arrange it for you.