If you’ve got multiple pensions, you might be considering consolidating them. Here are the top three reasons for consolidating your pensions – as well as a note of caution if you choose to do this on your own without the benefit of an independent financial adviser.
Having multiple pensions means you will be invested in different funds, all with different pricing structures. If you’re paying too much for your fund, it could reduce the growth of your pension fund over time, reducing your income in retirement. Furthermore, if you have ceased paying into a pension, which is commonplace when people move jobs, you will still be paying management fees, but your only growth will come from investment performance. It is good practice to review the costs of your retirement funds with an independent financial adviser to see whether you could bring your fees down through consolidating your pensions.
Particularly with workplace pensions, there is a tendency for everyone to exist in the “default fund” – in fact, 95% of people enrolled in workplace defined contribution schemes are in the default fund. Everyone has different circumstances and retirement goals, so it stands to reason that there will be more appropriate retirement investment strategies for most people than the default fund.
Working with an independent financial adviser will identify your retirement goals and whether you’re on track to achieve them. Of course, saving enough for retirement is vitally important, but the funds you’re invested in can make a big difference to the size of your total retirement pot and therefore the quality of your retirement.
Keeping track of different pensions can be problematic. When you’re evaluating the likely value of your pensions in retirement, it can be tricky to merge the projections from different funds to give you an accurate view. Plus, there will be multiple login and password combinations, physical records and more. As with many aspects of life, simple is usually best when it comes to managing your pensions.
When pension consolidation services don’t work
Consolidating your pension isn’t always the answer. These are some aspects to bear in mind:
- Exit fees. Some schemes may charge an exit fee, so make sure you ask your administrator beforehand
- Some schemes may have benefits that are advantageous to you, for example the way it pays benefits to dependents upon your death, so this is always worth looking at carefully
- It’s irreversible. Once you’ve moved your pension, you can’t move it back, so it needs to be the right decision
For many people, their pension is one of their biggest assets, if not the biggest. So, you can’t afford to get it wrong. Understanding fees, performance and suitability is complicated and is best done with an independent financial adviser, like Wren Sterling.
As with every aspect of retirement planning, the earlier you start the process, the easier it is to make adjustments and feel the benefit of those changes.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Pension income could also be affected by interest rates at the time benefits are taken.
The tax treatment of pensions in general and tax implications of pension withdrawals will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future.