This Sunday, 26th October, is National Pension Tracing Day. This is an annual awareness day, dedicated to encouraging people to take control of their retirement pots. The National Pension Tracing website speaks of the number of pension pots that are ‘lost’. They assert that since 2018, the number of lost pots has jumped by 75%, indicating a growing problem. Pensions UK detail that the total value of lost pension pots is £31.1bn, averaging £9,470 per pot. In this article, we’ll discuss why you may have multiple pensions, and how to mitigate the risk of lost pensions, by consolidating them.

Why might you have multiple pensions

In October 2012, the government introduced workplace pension auto-enrolment. This policy formed part of the Pensions Act 2008, and constitutes the automatic enrolment of eligible employees into the employer’s nominated pension scheme. You can find out more about auto-enrolment, including eligibility criteria, in our recent blog post.

Whilst auto-enrolment has made great in-roads to ensure more people are saving for their retirement, it has some drawbacks. One of these is the fact that different employers may choose different pension providers. If employees move to a new employer, they will not take their existing workplace pension with them. Both the employee and employer will stop paying into the previous workplace pension. The employee will be auto-enrolled into their new employer’s chosen pension scheme, if eligible. If you move employers a number of times, it will result in you having multiple pension pots.

Pension consolidation and its benefits

If you move house, best practice is to inform all your pension providers. This means that you will continue to receive pension statements through the post. In turn, you’ll not lose track of your pension details, so your funds will not become one of the ‘lost’ pensions. This can, however, cause an administration headache, depending on the number of pension pots you have. Additionally, as different pension providers have varied rules and benefits, this can be confusing. To both these issues, pension consolidation may be the solution.

Pension consolidation is the process of combining multiple pension pots that are held with different providers into a single pension portfolio. This reduces the administration effort required to keep track of your pension pots, one of many benefits to pension consolidation.

Being able to plan for your retirement requires knowledge of your future financial situation. Consolidating pensions enables you to take control, both of your pension contributions now and your future retirement. You will be able to plan your retirement more effectively. If your pension pots will not be sufficient for the retirement you hope for, there will be enough time to make financial adjustments to counteract this.

Each pension pot will have associated fees for the management of your invested funds. If you have multiple pension pots, you will be paying multiple instances of fees. By consolidating pensions into a single pot, you will only pay one set of fees. Consolidating away from pension providers with higher fees, will save you money in the long-term, and allow additional growth through compounding. More of your money will therefore be kept invested for your retirement. Additionally, combining pension pots will form a greater pot for investment. This in turn gives you access to more investment opportunities.

Things to consider before consolidating

Before making the decision to consolidate your pension pots, there are a number of things to consider. Firstly, you shouldn’t consolidate away from the provider your employer is currently paying into. Assess the fees associated with moving from your pension providers, as they may be prohibitive to consolidating away from them. The financial cost of moving from a pension provider may outweigh the benefits of consolidating your pensions. Each provider may also offer benefits to its pension holders. Consider the impact these benefits have in your circumstances, as they may be too good to lose.

If your pension is Defined Benefit, you will have a specific income guaranteed throughout your retirement. This is different to private pensions where the pay-out is intrinsically linked to the performance of investments. There is no guarantee of investment growth*. So, a Defined Benefit pension may not be worth transferring away from, in favour of a private pension portfolio.

How Willday Wealth Management can help with pension consolidation

Before making the decision to consolidate your pensions, we’d recommend getting expert financial advice. This will ensure that you are making the right decision for you. The Willday Wealth Management team will help you to make sense of the options available to you, and find the right course of action for your retirement plans.

When you make the decision to consolidate your pensions, call us on 0116 222 0119 or email hi@willdaywm.co.uk to book an appointment. We’ll speak to your providers on your behalf, and move your pensions to your Willday account. All we need from you is your pension pot providers, policy numbers, pension value and valuation date. We’ll do the rest!

So contact us now, to consolidate your pensions and save more money for your ideal retirement!

*With investing, your capital is at risk and you may get less than what you invested.