When you have several pension pots, things can become complicated. If you have accumulated a number of pension pots over the years from different employers, consolidating them could be a sensible move.
Simplifying and maximising retirement benefits
The employment landscape has evolved significantly over the last few decades, and changing jobs multiple times before retirement is now very much the norm. As a result, many people have multiple pensions set up, as they have been automatically enrolled into a new pension scheme each time they have started a new job.
Combining pension pots into one
You may have pensions that were set up a long time ago and are no longer suitable for your requirements or you could be overpaying for services such as life insurance that are not required. Monitoring the performance of multiple pensions is also time-consuming. This is why bringing all your pension pots together can give you more control over your money and provide a much clearer picture of your overall pension savings.
Benefits of consolidating your pensions
Consolidating your pension pots enables you to bring together all your different pensions and makes it easier to manage your money.
Less time will be needed to monitor each different pension, checking their performance, and there is likely to be less paperwork once your pensions are combined. By simplifying your pensions’ structure, you will also be able to get a better understanding of whether your retirement planning strategy is on track.
Simplifying your asset allocation
Crucially, having all your pension savings in one place should also make it far easier to determine your overall asset allocation. If your pension savings are spread out over many different providers, it can be hard to keep track of your exact asset mix and know how much risk you are taking on. If you have a plan that was set up a long time ago, you may not even know what investments you currently hold.
Additionally, consolidating your pensions can give you the opportunity to lower costs if you switch to a more cost-effective pension provider, or boost your investment options if you transfer to a more flexible provider.
Circumstances when pension consolidation might make sense
- You have a number of pension pots and want more control over your money
- You have a number of pension pots and want less hassle
- You are unhappy with the performance of a current provider
- You are unhappy with the choice of investments offered by a current provider
- You are paying high fees with a current provider
Circumstances when pension consolidation might not make sense
- You are a member of a defined benefit pension scheme. If you transfer out of this type of pension, you’ll be giving up guaranteed benefits and potentially taking on greater risks
- You have a pension that comes with valuable benefits. For example, a pension may allow you to buy a higher income in the future via a ‘Guaranteed Annuity Rate’
- You have a pension provider that charges high fees to transfer to another provider
Before consolidating, check what you have
Do you know how many pensions you have and what they offer? For example, do they have particular death benefits or financial guarantees, and do they let you take your pension money how and when you want?
We can check what benefits and guarantees there are that you would not want to give up so you should ask your pension providers for up-to-date information.
Combining pensions isn’t right for everyone. If you have any pension pots worth more than £30,000, you have to take financial advice.
Pension consolidation scenarios
There are a number of ways that pension pots can be consolidated. For example, one strategy is to pick one of your pension pots and transfer the other pensions to this pot.This could make sense if you are happy with the services offered by one provider in particular.
Alternatively, you could bring all your pensions together into a Self-Invested Personal Pension (SIPP) – a government-approved personal pension scheme which allows you to make your own decisions about how your pension savings are invested.
