Many people change jobs several times during their working lives. A new pension often comes with each move, leading to multiple pension pots scattered across different providers.
Since automatic enrolment began in 2012, more than 10 million people have started workplace pensions. That’s a lot of pension pots to keep track of.
Managing several pensions can be challenging. Different logins, various annual statements, multiple investment strategies and separate charges all add complexity to your retirement planning.
Many people lose track of old pensions entirely, particularly after house moves or when paperwork gets misplaced. Research suggests there could be £26.6bn in lost or forgotten pension savings across the UK.
Pension consolidation – bringing your pensions together into one pot – might help simplify things. However, combining your pensions isn’t always straightforward. Some pensions have valuable benefits worth keeping, while others might charge exit fees for transferring out.
This article explains how pension consolidation works, examines the potential benefits and pitfalls, and outlines the steps involved in combining your pensions. We’ll help you understand if consolidation could work for you and when to seek professional advice.
What is pension consolidation?
Pension consolidation is the process of combining multiple pension pots into a single plan. It can apply to most types of pensions, though some special schemes might have restrictions. The basic process involves transferring the value of your existing pensions into one chosen scheme.
The average person changes jobs every five years, potentially accumulating several workplace pensions throughout their career. A typical 30-year career might involve five or six different employers, each with its own pension scheme. Each of these comes with its own paperwork, costs and investment choices. Add in any personal pensions started during periods of self-employment, and you could easily end up with seven or eight different pensions by retirement age.
Each of these pensions represents a piece of your retirement funding. While they all work towards the same goal – providing income in retirement – managing them separately can become complex and time-consuming. Consolidation can bring these scattered resources together.
Benefits of combining your pensions
Consolidating your pensions can bring several benefits.
A single pension pot can be easier to manage than separate ones. You’ll have one set of login details, one annual statement and one point of contact, making it easier to track your pension value and assess if you’re on course for your retirement goals.
It can save you money. Each pension carries management fees. Having one pension instead of several might reduce your overall annual charges. Some providers also offer discounts for larger pension pots, potentially leading to further savings.
A consolidated pension pot can make your investment strategy clearer. Instead of juggling multiple investment approaches across different providers, you can create one coherent strategy. This makes it easier to align your investments with your risk tolerance and retirement timeline.
And modern pension schemes often offer more flexibility than older ones. Features like drawdown options and broader investment choices might become available. You might gain better online access and improved tools for managing your pension.
Key considerations before consolidating
Some pensions come with valuable benefits you might lose by transferring. Defined benefit (final salary) schemes provide guaranteed income in retirement.
Giving up these guarantees needs careful thought. You should seek advice from an experienced pensions adviser before making any decisions.
Some older pensions offer guaranteed annuity rates far more generous than current market rates.
Check for any transfer penalties or exit fees. Some providers charge fees for transferring out, which could reduce the value of your pension. The receiving scheme might also have different charges. Compare these against your current costs.
Investment options vary between providers. Review the available funds in your target scheme to ensure they match your needs. Consider factors like fund performance and risk levels, as well as ethical investment options, if these matter to you.
Death benefits can also differ between schemes. Some offer better provisions for your beneficiaries than others. Understanding these differences will help you make informed decisions about consolidation. Again, an experienced adviser can help you understand all your options before you commit.
Steps to consolidate your pensions
Start by gathering information about your existing pensions. You’ll need recent statements showing plan numbers and current values. The Government’s Pension Tracing Service can help you locate any lost pensions. Many people find old pension paperwork during this process. It’s worth checking files from previous jobs and old correspondence.
Contact your pension providers for transfer values. These show how much you could transfer to another scheme. Ask about any special benefits, guarantees or penalties that might affect your decision. Some providers take several weeks to provide transfer values, so allow time for this step.
Choose a receiving scheme for your consolidated pension. Consider factors like charges, investment options and features. Your current workplace pension or a personal pension might be suitable options. This decision can significantly impact your retirement savings, which is why getting professional advice is essential.
Our experienced advisers can help streamline this process. We’ll contact your pension providers, analyse transfer values and identify any valuable benefits or potential pitfalls. Our experience will help you spot issues you might miss, such as protected tax-free cash or guaranteed annuity rates. We’ll also research suitable receiving schemes and compare their features and costs.
The transfer process typically takes 4-8 weeks. Your chosen provider will handle most of the paperwork, though you’ll need to complete some forms. Keep copies of all documents and correspondence. We’ll monitor the transfer process and ensure everything progresses smoothly.
How can Glenrose help?
At Glenrose, we help clients navigate pension consolidation decisions. We’ll review your entire pension situation, explain your options and recommend the most appropriate course of action for your circumstances. We’ll identify valuable benefits worth keeping and help you understand the full implications of any transfers.
We can also guide you through the entire consolidation process, if appropriate. We’ll help you gather the necessary information, complete the paperwork and recommend suitable receiving schemes and investment strategies.
Book an appointment with one of our advisers to discuss your pension consolidation options. We’ll help you understand if consolidation could benefit your retirement planning.