It’s never too early to think ahead, and plan for your retirement, especially when it comes to your pension. Over the years, you may have accumulated various pension pots, if you’ve worked for different companies along the way. Nowadays, it is not uncommon to have worked for up to 10 different employers throughout your career.
If this is the case, you’ll likely have enrolled automatically into the company’s pension scheme, each time you started in a new role. This can make it easy to forget the number of pensions you have, or the type of plan they follow, as well as make it harder to monitor each pension’s performance.
The solution may be to combine all your pensions into one, allowing more efficient and effective management, and giving you a clear picture of the savings you have for retirement.
In this article, we’ll explore what it means to consolidate your pensions, and the benefits it may have for your financial plan and retirement goals.
Table of Contents
What does it mean to consolidate your pension?
In simple terms, pension consolidation means combining all, or most, of your funds from different pension pots or schemes, into one. This can be accumulated from previous employment or from personal pensions.
This can be a sensible decision to make, but you should take into consideration various factors before combining pensions, such as:
- The type of pensions you have
- How much they are worth
- If they are being managed well
- Whether they currently have any special guarantees attached
It’s important to consider both the pros and cons of consolidating your pension, so that you’re making the most of your savings, and aren’t liable for high costs of transferring from one to another.
It can also be a lengthy process, and you’ll be out of the market for this amount of time, which is another factor to consider.
When is it sensible to consolidate your pensions?
The benefits of transferring your pensions into one will be specific to your individual situation, but there are some common occasions when it can be the right move.
For example, with the help of a pension expert, you may decide to combine pensions when you have multiple pension pots, and wish to have more control over your money, or a more efficient way to keep track of your pension savings.
On the other hand, you may want to have less hassle, and more involvement from the pension provider to manage your money. It can be more convenient to have your pensions all-in-one place.
A pension transfer can also be beneficial if you’re unhappy with your current provider, the choice of investments made, or if you believe the fees you pay are too high. These can therefore change when combining your pensions, and moving to another provider, and could potentially save you money, or achieve better growth for your funds.
The disadvantages
As previously mentioned, there are many benefits to consolidating your pension pots, but there are also some disadvantages. You may incur high exit fees to transfer your current pension to a new provider, which may not make the process worthwhile.
It is also worth checking if the pension scheme you have at the moment has additional features, such as early access, guaranteed annuity rates, or the ability to withdraw more than 25% tax-free cash. These benefits are likely to be lost if you were to move your pension to a different scheme.
Should I combine my pension pots?
Planning for the future, today, is always the best approach to your retirement. Investing in the right pension fund now, can have a significant impact on your future income.
However, moving pensions can sometimes be a complicated process, and you should ensure it is the best option for your personal financial solution. Therefore, it’s a sensible idea to seek expert advice when planning for your retirement, such as consulting with an adviser from Close Brothers Asset Management, for example.
Remember, when considering pension funds or investment strategies, the value of investments can go down as well as up, and you may get back less than you invested. This article is not intended to be an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation. Any tax benefits will depend on your personal tax position and rules are subject to change.
With the help of a financial adviser or pension expert, you can formulate a bespoke plan for your pensions, tailored to your current and predicted financial situation.
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