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What does ‘consolidating pensions’ mean and should you do it?

What does ‘consolidating pensions’ mean and should you do it?

Edward Willday – Oct 04, 2022 – 5 mins

What does ‘consolidating pensions’ mean and should you do it?

Edward Willday – Oct 04, 2022 – 5 mins

If you have worked in more than one business since 2012 when the auto-enrollment to workplace pensions was introduced in the UK, there’s every chance you have more than one pension. You may have heard people speak about consolidating pensions but may be unsure as to what that means and whether you should be acting.

In simple terms, consolidating your pensions means bringing each of your different pensions together into one pension pot. As with any decision to do with finances, if you are unsure, you should speak to someone with financial expertise, such as us here at Willday Wealth Management.

In the meantime, we have compiled the key advantages and disadvantages of consolidating pensions, to help inform your decision of whether this is for you.

Advantages of consolidating pensions

Administrative benefits -If you move house, you should let all your pension providers know. The more pensions you have, the bigger the administrative headache this will cause you.

Less chance your pensions will go missing – Research from the Association of British Insurers (ABI) found that there is over £19.4bn “lost” in forgotten UK pensions. The fewer pension providers you have funds with, the less chance there is that your funds will be included in this number.

Easier to track against retirement goals – In order to see how close you are to your financial goals for retirement, you need to have details of each of your pension pots. Clearly, the fewer pots you have to track, the easier the process will be.

Pension plan charges – Charges will be levied by pension providers, including service administration charges and annual management fees that could be up to 2% of the pension pot per year. By consolidating away from plans with higher charges, huge savings could be made, and more of the money you have saved will be yours in retirement. It is not cost effective to pay administration charges for multiple plans. Another consideration about the charges levied for each pension plan is that it is not always easy to find information about the charges you are paying. By consolidating into one pension pot, there are fewer charges to consider.

Some pension providers have superior investment options – By consolidating your pensions, you are able to shed your underperforming pensions. By this we mean those where the provider is not making investment decisions on your behalf to grow your savings effectively. Consolidating will allow you to focus on the one that is working the most to benefit your savings.

Easier access to funds in retirement – Some pension providers do not make it easy to access your savings and may have limits on how much of your fund is accessible and when. Consolidating your pensions into one pension pot means you’ll only have one set of rules to comply with, making it easier to plan your finances.

How many different pension pots do you have (excluding your state pension)?

When consolidating pensions may not be ideal?

In reading these advantages you may feel that consolidating pensions is a no-brainer. For many, this will be the case. However there are a few circumstances where consolidating pensions may not be the best course of action.

    • If your pension plans have additional benefits included, for example life insurance or critical illness cover. If you choose to consolidate pensions away from these plans, you should factor in the cost of taking out this insurance or cover independently from your pension plan
    • If your existing pension plans have been working hard to boost the value of your retirement fund, it may be more financially sound to keep the plans in place, even if this means having more than one plan in place
    • Some pension plans have high exit charges. This cost should be weighed up against the annual fees you would need to pay if keeping the plan to determine which is the most cost effective
    • Those with defined benefit pension schemes may be advised not to consolidate pensions, given they shield you from investment risk
    • Finally, if you are currently paying into a workplace pension, you should not consolidate away from this provider as your employer may no longer contribute to it

So what next?

Now you understand the advantages and drawbacks to consolidating pensions you may be wondering your next steps.

Your first step is to locate the different pension pots you have, including those you may have forgotten about. The good news is, we can do this for you! Simply fill your details in here and ask us to “Find My Pension”. We’ll search over 100 different pension providers, free of charge, to find your pensions. After giving you the results of the search, we’ll offer you a consultation call with one of our pension specialists to discuss the different pension consolidation options available to you. We’ll advise you on the best course of action for you, and – if you decide to go ahead – will take care of the consolidation for you too.

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We hope this has helped you to understand the latest news from the Treasury, and how it will impact you. If you have any further questions, please don’t hesitate to contact us.

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