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SHOULD I CONSIDER COMBINING MY PENSIONS?
by Sam Hulson of First Equitable
With the average Briton having six jobs throughout their working life, that
could potentially mean you have several different pension pots in your
name. So, how do you keep track of all of them and their performance?
Do you simply let them sit there and do “their thing”; or do you actively
manage each one to ensure your retirement is as financially comfortable
as possible?
The majority of people will say the former – rather than dealing with different
pensions providers and paperwork, they may just let the money sit there and
trust it to fate. Anybody who has taken an interest in how their pensions
have performed since Covid-19 spread throughout the world will see how
this approach can have some obvious risks attached!
PENSION CONSOLIDATION
By combining all your pensions in to one pot, this may make them easier to
manage as well as enabling you to see how your investments are performing.
Consolidating your pension pots will not be appropriate for everybody,
however, and that is why seeking independent financial advice, ideally with a
Pension Transfer Specialist, would be a sensible place to start.
ARE YOU ELIGIBLE?
Firstly, you need to check that your pensions can be moved. This depends on
the type of pension you have (e.g. a money purchase occupational scheme, a
personal pension, or a final salary scheme) and in some cases who the scheme
is with.
As an example: you are no longer allowed to do this if your defined benefits
are in an unfunded public sector scheme (Unfunded schemes include the
Teachers’ pension; NHS; Civil Service etc. The main funded public sector
pension scheme is the Local Government Pension Scheme).
WHY CONSOLIDATE YOUR PENSION POTS?
If your pension pots can be moved, then you may want to consider
consolidating your pensions to:
• Make it easier to estimate the income you can expect to receive from
your pension at retirement.
• Simplify the administration by having everything with a single provider
- it may be difficult to keep track of the fees you’re paying if you have
several different pension pots with different providers.
• Move them to a pension scheme that fits better with your investment
outlook, your attitude to risk or your plans for drawing benefits. This
may be a scheme that has access to a better range of funds or can provide
more flexible drawdown arrangements when you reach retirement age.
• Improve the fund performance - do your current schemes offer a wide
and competitively priced fund choice? Have your funds performed as
well as other funds of comparable risk level available across the whole of
the market? Underperforming funds have been shown to cost investors
billions of pounds of lost returns each year.
• Reduce costs. In recent years there has been much focus on reducing
costs within investment solutions. If your pension was established
many years ago it may well be that you are paying higher fees than are
necessary.
• Access to professional advice - perhaps your current scheme does not
give you the option to receive advice? Having access to advice is likely
to become even more crucial the closer you get to retirement. However,
even if you are many years away from retirement, ensuring you are
maximising investment returns will have a significant impact on the
size of the final pot you can expect.
ARE THERE ANY DOWNSIDES?
Yes, there can be. For example:
• Some pension plan providers will charge you an exit fee if you move
your pension away from them, which could be high and deplete your
funds.
• Certain pensions contain valuable fixed benefits that you might be best
advised to hold on to. If you transfer these to a new scheme these will be
lost. If any of your schemes contain guaranteed benefits, a good starting
place will be to read our comprehensive Guide to Final Salary Pension
Transfers. You can download this via our website.
• Whilst transferring to a new scheme might provide an opportunity to
reduce your costs; conversely, it could also increase the overall costs, as
you may need to factor the cost of any advice you receive as well.
IS PENSION CONSOLIDATION RIGHT FOR ME?
As we have discussed, for many people, consolidating their pension can be
beneficial: providing more control and flexibility and the potential to improve
performance and even pay lower fees - all within one easy to manage pension.
However, there can also be downsides too. Making the wrong decision could
see you lose out financially and that is why seeking independent financial
advice from a pension transfer specialist should be considered. After all, this
is your financial future you are playing with, and to get it wrong could have
serious implications. In fact, if any of your pension pots have guaranteed
benefits that are worth over £30,000, then you are legally obliged to receive
independent advice before you move pension providers.
At First Equitable, we are pensions and retirement planning specialists and
have many years of experience helping our clients successfully achieve their
goals and objectives. If you would like to receive some friendly and helpful
advice, in a language you can easily understand, then please give us a call or
complete an enquiry form via our website.
You can also email any questions to me at: [email protected]
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