There once was a time when people would get a job at 16 and stay with that same company for life. They’d start saving for retirement at a young age and when they reached pension age, they’d get a hefty payout. Now, it’s far more common to switch jobs every few years. While this can have great career benefits, it’s made the world of pensions even more complicated than it was before. If you’ve had more than one job, chances are you have more than one pension - and this can make it harder for you to manage your money and get the most out of your savings. Thankfully, it’s possible to combine your pension pots all in one place and doing so could help you grow your retirement savings faster!
Should I consolidate my pensions?
When it comes to big financial decisions like your pension, figuring out what you should do can be tricky. Consolidating your pensions can have numerous advantages that could help you grow your pension savings quicker and reach retirement sooner. But there have been cases where people have combined their pensions only to be left worse off financially. This is why it’s a good idea to seek financial advice if you’re unsure what to do.
How easy is it to combine pension pots?
It’s possible to transfer a pension yourself by contacting your current providers directly and explaining what changes you’d like to make. You’ll need to get in touch with the provider(s) you’d like to leave to find out whether you can make the move. You’ll also need to reach out to the provider you’d like to move to, to check they’ll accept the transfer.
How long does a pension transfer take?
According to the Financial Conduct Authority, the average pension transfer takes around 16 days, though the exact length of time can vary. Sometimes it’s much faster than this but there have been examples of pension transfers that have taken as long as 6 months to complete! There are a number of factors which can influence the amount of time a transfer takes including:
- Type of transfer
- Paperwork
- Fees and exit charges
Defined benefit (DB) transfers can take longer than defined contribution transfers. This is because pensions advisers are legally obliged to make sure the pension holder understands the implications of leaving a defined benefit scheme. In most cases, experts advise against moving out of a defined benefit plan.
Pension consolidation benefits
If you decide to combine pension posts, here are a few potential benefits:
Easier to manage your pension
Managing your retirement savings can be a challenge when you have multiple pension pots. By consolidating your pensions all in one place, you can save yourself time and stress. You won’t need to make a note of multiple passwords and there should be less paperwork in the long run.
More accurate projections for the future
When you have all your pension savings in one place, this could make it easier to project how much you’ll have in the future. This is because some pension providers will calculate this for you. They’ll use your current pension savings rate teamed with estimated investment growth to predict how much you’ll have when you reach retirement age. There are no guarantees but this data can be helpful and inspiring
Choose the best pension of the bunch
Another perk of combining multiple pensions into one is that you can pick the best of the bunch and make the most of its benefits while ditching the ones that aren’t as rewarding. It might be worth seeking financial advice to determine exactly which pension is the best, unless you know enough about pensions and investments to work it out yourself. A financial advisor should be able to help you identify the best-performing pension so you can make the most of your contributions.
Eliminate unnecessary fees
Most pensions will come with fees such as management fees. If you have several pension pots, the fees can eat away at the money you’ve saved for retirement over time - particularly if your portfolio isn’t benefiting from much growth. Done well, consolidating your pensions might help you reduce the fees you pay.
Pension consolidation downsides
There are also downsides to pension consolidation. In some cases, these may mean it’s better to keep your pension investments separate from one another.
The wrong decision could cost you
Although consolidating your pension pots can be a great way to make the most of one particular pension’s rewards, picking the ‘wrong’ pension could cost you.
Some pensions providers offer what’s known as safe-guarded benefits. If you transfer out of one of these schemes and move your money elsewhere, you’ll miss out on these benefits.
Safe-guarded benefits can include:
- Guaranteed growth rate
- Early access to your pension
- Higher amount of tax-free cash than normal
Before making the move, check whether any of your schemes have safe-guarded benefits and be sure to factor this information into your decision.
If you have a defined benefit pension and it has a value of £30,000 of more, get in touch with an independent financial advisor before you make any changes.
There may be exit fees
Some pension schemes charge customers an exit fee if they want to move money out of that pension and over to another provider. The fee is likely to be a percentage of your pension savings but this can depend on the provider you’re leaving.
Before you leave a particular pension scheme, make sure you’re aware of any exit fees. Just because a pension has exit fees doesn’t mean you should stick around. After all, your pension is a long-term investment and the benefits of leaving could outweigh the amount you’ll save by staying.
You may need to seek financial advice before you combine pension pots
As we touched upon earlier, it may be wise to see a financial advisor before you combine pension pots. I know, I know, paying hundreds of pounds for financial advice may seem like a costly move. But try to see it as an investment in your future. Financial advice could save you thousands of pounds or even allow you to retire sooner than planned.
Is it best to consolidate pensions or leave them separate?
The right move for you will depend on your personal circumstances, your existing investments, your future saving capabilities and your plans for retirement. It’s impossible for the internet to give you the answers without knowing the information above.
The idea of pension consolidation might sound intimidating but it doesn’t have to be. The most important thing is that you actually engage with your pension. When you pay attention to where your money is, how much your pension scheme is costing you and whether your investments are growing, it can be really empowering. Knowing how your pension is performing may inspire you to put more money into it and give you a better idea of how much money you’ll have in retirement.
