The average person can have over 10 different employers during their career, and each employer is legally obliged to enrol their employees in a workplace pension. This can leave employees with a trail of pensions with different pension providers – an absolute nightmare for anyone trying to stay on top of their funds.
Consolidating all these pots into one pension plan can make managing your funds much more straightforward and can also give a clearer picture of how your savings are performing, as well as what your pension provider charges.
The final decision on consolidating your pension rests with you, but here are all the pros and cons to consider first.
4 Benefits Of Pension Consolidation
Your Money Is All In One Place
Consolidating pension means you only have to keep track of one retirement fund. This can limit the piles of paperwork you have to deal with and will give you a clearer idea of the amount you have managed to save. You’ll find it easier to understand your pension plan and calculate how much you still need to save before retirement.
You Can Move To A Modern Pension Plan
Some outdated pension plans involve post and web portals that are difficult to navigate. But if you consolidate pensions, you can choose a modern service provider that offers online access to our details. You can check your balance and make contributions and withdrawals online with minimal hassle. In turn, you’ll be left feeling more in control of your finances.
You Can Get Better Performance From Your Fund
Often, people will move their pension to find a plan that can boost their funds by offering good returns on investment. If you have only a single plan to manage, you can find one that matches the ways you’d like to invest and how much risk you’re willing to take.
Ask your service provider for a pension factsheet to understand how your funds will be invested. Keep in mind: There are no guarantees when investing.
You Can Have Lower Fees
Combining pensions can help you keep track of what administrative fees1 you’re paying, but it can help lower the charges on your fund. Many pension service providers add hidden costs to your bills, such as investment charges, inactivity fees and contribution fees.
Amalgamating all your pensions into one plan could help you save money by avoiding these fees and will stop your smaller pots from being eaten away by additional charges.
Look for pension funds that charge only annual management fees and ask you pension provider for a breakdown of what you may be charged.
2 Things to Consider Before Consolidating Pensions
Do You Have To Pay Exit Fees?
Some pension providers require you to pay an extra charge if you want to move your pension elsewhere. The fee is usually worked out as a percentage of your pension pot. However, if you have a pension plan in a ‘with-profits’ fund, the exit fee may be worked out as a Market Value Reduction (MVR).
Speak to your service provider about what fees may be levied before you decide to transfer your pension. Pension funds are long term investments, so you may want to give careful consideration to whether or not you wish to move your fund.
Do You Have Safe-Guarded Benefits?
Some pension plans offer benefits for you to remain with the service provider, and these could be lost if you move your fund to another scheme. Safe-guarded benefits can take many forms, including a guaranteed growth rate on your fund, early access to your pension or a more significant tax-free cash amount.
Check if you have safe-guarded benefits and consider if it’s worth losing them when you transfer your funds.
Did you know?
If you are considering transferring a defined benefit pension valued over £30,000, you should be aware that you will need to seek independent financial advice before you can make the transfer.
How to consolidate pensions
You will need to give your new pension provider information about your old pensions, to enable them to consolidate the pots into one scheme. This will include the pension provider name or a policy number, and the information will usually be found on your old paperwork. Should you have misplaced your paperwork, speak to your old pension service provider or past employer for the information. Another option is to contact the Pension Tracing Service offered by the government2 to track down an old fund.
A Few Common Questions
Each pension provider offers different fees, with annual management fees usually listed as a percentage of your pension value. Consolidating your pensions can reduce the overall amount you pay in fees and help you keep track of what you’re being charged.
Your new pension service provider will need you to provide information about your previous pension plans. This includes the pension provider who holds your pensions, as well as your policy number. If you don’t have this information, consider contacting past employers or using the government’s Pension Tracing Service.
Some types of pensions offer benefits that will only apply if you stay with that pension fund. If you leave your service provider for a consolidated pension fund, these benefits could fall away, and you could lose out on early access to your pension, a guaranteed growth rate on your fund, or a bigger tax-free cash amount.
You will have to pay exit fees at some pension providers. This charge is usually calculated based on your pension pot’s value when you request to move it. Your pension provider should be able to give you a breakdown of any fees you’re liable for before moving your funds.
Consolidating your pensions into one scheme may seem like a complicated process. However, with the guidance of your pension provider, this can become a simple process that can offer you various benefits.