Recent Government research has concluded that the average employee will change jobs 11 times over the course of their working life. Auto-enrolment to a new pension scheme every time you change jobs can lead to having a significant number of pension pots in place making it difficult to keep track of both performance and the various piles of paperwork and documents.
Pension consolidation is the process of combining these numerous pension pots in to one making it easier to keep track of your pension savings and how they are performing.
Reasons to consolidate…
Easier to manage and review
Combining several pensions into one is clearly going to make to process of managing
and monitoring your pensions performance a far easier task. Consolidation gives you complete visibility over your investments and allows you to make changes quickly and easily. Being able to deal with just one provider will cut down on a great amount of hassle and paperwork.
Potential improved performance
Where and how your pension funds are invested is going to determine how well it performs. Some traditional schemes may only provide limited access to a range of funds, whereas a more modern scheme may offer access to potentially thousands of funds giving more choice and flexibility.
Reducing pension costs
Given your pension investment is a long-term strategy the level of charges applied can have a significant impact over that period of time. Some “older” pension schemes carry high charges in comparison to today’s modern schemes, so consolidating can significantly reduce your pension costs ultimately leading to you having more for your retirement.
Flexibility in accessing your funds in retirement
The Pension Freedoms legislation, which came into force from April 2015, allows savers to flexibly access their defined contribution pensions from the age of 55 and use the funds for a wider range of options, including cash withdrawal, flexible drawdown, retirement income products (annuities) or a combination of these.
Whilst this has provided a huge range of flexibility for people most older schemes that were set up prior to 2015 are unable to offer this level of flexibility so consolidating to a more modern scheme becomes a necessity to enjoy the level of flexibility now offered.
Reasons to NOT consolidate...
You have a final salary pension
If you have a final salary pension (known as a defined benefit pension) then its unlikely that consolidating would be the right thing to do. These types of pensions provide a guaranteed income for life and are often linked to inflation, so your income rises in line with the cost of living. Many also have benefits such as providing income for spouses should you pass away.
You have “safeguarded benefits”
Safeguarded benefits are included in some pension schemes. These may typically be features like, enhanced access to tax-free withdrawals, minimum pension value guarantees or guaranteed annuity rates. All of these are significant, and care should be taken to ensure you’re aware of these benefits when thinking about consolidation.
Costs of exit charges
Some pensions will charge an exit fee. The level of charge will vary among providers, but this could reduce the benefit of consolidating your pensions, even if there is a cost-saving in doing so. You will need to compare the exit fee payable with the annual cost saving to determine whether consolidation would be the right thing to do.
Is pension consolidation right for you?
Unfortunately, as is generally the case with financial planning decisions there isn’t a yes or no answer to this question. The decision to consolidate your pension will depend entirely on the types of pensions you have and your personal circumstances.
If you’d like a review and analysis of your existing pension arrangements and your financial strategy, please get in touch for a FREE initial consultation so we can build a plan together for your financial future.
Our services relate to certain investments whose prices are dependent on fluctuations in the financial markets beyond our control. Investments and the income from them may go down as well as up and you may get back less than the amount invested. Past performance cannot be used as a reliable prediction of future performance.
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