Should I Consolidate my Pensions? How to do it

On average, a worker in the UK changes their employer every five years. Gone are the days of remaining in the same role for decades, a social shift driven by young people entering the workforce with fundamentally different attitudes to work than generations past. For a lot of people, this means having pensions split across several different providers.

Businesses will each have a pension provider they use, and it is unlikely that, across an entire working life, these will all match up. With auto-enrolment coming into action in 2012, workplace pensions are accrued but not necessarily engaged with in any meaningful way.

Having several pensions can be a hassle, and you need to ask yourself these questions, ‘should I consolidate my pensions?’ and ‘How do I consolidate my pensions’. This article will highlight the pros and cons of consolidating existing pensions.

What is Pension Consolidation, and how does it work?

Pension consolidation is the merging of multiple or all existing pension plans into one pension plan.

A pension consolidation process entails the movement or transfer of funds and investments from existing pension plans or pension schemes to a new or existing pension plan. Most times, the pension plan to which funds are transferred is a defined contribution pension scheme, self-invested personal pension scheme (SIPP), self-employed pension, or stakeholder pension.

For workplace pension, you are transferring out of a defined benefit pension scheme to a defined contribution pension scheme. This means that you can have multiple personal pensions, even under the same pension scheme provider.

It is possible to combine final salary pension plans, also known as defined benefit pensions. However, you may lose the benefits associated with a final salary pension scheme, such as guaranteed income for life. Some pension providers offer hybrid pension schemes with defined contribution and defined benefit pension scheme elements. Always seek financial advice and read the terms and conditions before moving or consolidating your pensions.

It is easier to merge pension pots from the same pension provider, and it entails minimal paperwork.

Reasons why you should consolidate your pensions

Here are some of the reasons why you should consolidate pensions.

Cost Savings: ‘Lost’ or old untracked pension schemes make for a real possibility that at least a portion of your retirement savings is languishing in expensive accounts. Having multiple pension pots also means having to pay multiple management fees. So, if you have multiple pension pots and are wondering, ‘Should I consolidate my pensions?’ The answer is yes because you will reduce the fees and charges associated with maintaining multiple pension accounts.

Time Saving and Simplification: It may be time to consolidate yours in one place. Not only will charges often be lower, but you won’t have to spend time dealing with multiple different providers. You can have one clear, accessible pension scheme that is easy to monitor and manage. As people approach retirement age and seek to simplify their finances, many will ask themselves, ‘Should I consolidate my pensions?’. Yes, you should consolidate your pensions to make retirement planning easier as you get a better picture of how your money is invested and managed.

Easy Tracking: Consolidating your pension accounts can make keeping track of the investment performance far less complicated. With one pension plan, you can keep easily track of your investments to ensure you meet your retirement goals, even with your 50s retirement savings. Workers are, however, free to pull all their workplace pensions together into a single scheme for peace of mind and ease of access.

More flexibility: Schemes vary more than you might think. Old schemes are often inflexible and may be poorly performing. Combining your pension with a newer scheme, on the other hand, makes things considerably more straightforward and transparent. You have more clarity on when you can start withdrawing from your pension and how much you can withdraw per tax year.

Control: Combining multiple pension pots into a single pension pot helps individuals have better control of their investment savings and investment strategy. Individuals can move investment funds from underperforming accounts to better-performing pension plans.

Investment Options: Consolidating your investments can give you access to a greater choice of investments. Rather than settling with the providers used by previous employers by default, it can pay to shop around and choose a provider with the right investment option that best fits your financial circumstance, risk tolerance, and retirement goals.

At Moneyfarm, we’ll give you one-to-one live guidance, an actively managed investment portfolio that never gets stagnant, and a free review of your existing investments to ensure that you’re on the right track for your retirement. We won’t charge fees for transfers in or out, we won’t charge you trading or deadline costs, and we offer target-dated and free pension drawdowns.

How can I find my pensions?

Making the decision to consolidate is one thing, but locating what is for many a number of different pensions can be daunting.

Pension providers are also obliged to send members a yearly statement, which might serve as a reminder for a lot of people that those accounts even exist. The problem comes when people, the young in particular, are moving home more than ever before. A large portion of the workforce has had multiple addresses on top of numerous jobs, meaning keeping track of pension plans can appear tricky.

Luckily, it’s easier than you might think to trace those misplaced funds. In 2016, the UK government launched a Pension Tracing Service, which helps workers locate what the Association of British Insurers estimates is around £19.4 billion in ‘lost’ pensions. That’s about £13,000 per plan.

Costs of pension consolidation

If you have multiple pension plans from previous employers, you may be wondering, “Should I consolidate my pensions?” to simplify your retirement planning and potentially reduce fees. However, there are some costs associated with a pension consolidation. They include:

Transfer fees: You may be charged by your current provider for transferring your pension to a new provider. The fee varies depending on the provider and the type of pension.

Exit fees: Pension providers may charge an exit fee for leaving their scheme. Fee prices vary depending on the provider, so check with your provider before deciding on a pension consolidation.

Annual management fees: Most pension providers charge an annual management charge for managing your pension, and the charges vary depending on the provider and the type of pension.

Investment charges: Additional investment charges may occur with your pension fund investments or other investments.

Adviser fees: Some pension providers charge you if you want professional advice with your pension consolidation.

Ultimately, the decision of “should I consolidate my pensions?” depends on various factors such as the fees and investment options of each plan. Before making an informed decision, carefully consider and understand the fees associated with a pension transfer.

Things to check before consolidating

Consolidation isn’t a silver bullet for the complexities of saving for retirement. There are problems associated with moving pensions around, and you should investigate the details of yours before you start. However, you can easily find out from the provider if any of the points below apply to your pensions.

One of the most common problems, usually found in older legacy pensions, is exit penalties. Newer providers tend to opt for a more flexible system, but occasionally heavy penalties still exist for some when a transfer is instructed. Giving up a portion of your pension pot to transfer is a decision for the individual to make, but something to bear in mind if you are contributing to an older pot.

You might also lose attractive features. Again, primarily associated with older pensions, these include early access, tax-free cash and guaranteed annuity rates. If your pension offers these it is worth considering them before making any decisions about a transfer.

How to choose the right pension provider for your consolidation

There are several factors that will help you determine the right pension provider for your consolidation. You need to consider the fees, charges, and transparency of the provider. Ensure the available investment and pension options align with your financial situation, retirement goals and risk tolerance. Ensure the provider has reliable customer service with adequate online resources and tools to help access and manage your account.

When it comes to contributions and withdrawals, look for providers that offer the type of flexibility terms you want in retirement. Finally, ensure that the pension provider has professional, certified financial advisers to assist with financial planning, a good reputation, and is regulated by the Financial Services Compensation Scheme (FSCS).

How to transfer your pension

If you’re wondering, ‘How do I combine my pensions?’, several pension options are available to you, such as transferring your pensions into one pension scheme or using a pension consolidation service.

Transferring a pension is more straightforward than you might think. So long as you haven’t started to take income from them, these days, it is rarely much more complicated than compiling some readily available information and actioning a transfer.

At Moneyfarm, we’ve made transferring to us as easy as possible. When you create a pension portfolio with us, we’ll ask if you’d like to transfer an existing pension to get started. All we need is your provider’s name, your account number and the pension’s estimated value – details you can use the government Tracing Service for if you need to.

You can input this information online or just through the mobile app. Once you’ve done that, we’ll get in contact with your existing provider to move your pensions over. Depending on the provider, the process takes three to four weeks, and it’s all done electronically, which means mountains of paperwork are a thing of the past. We manage the entire transfer process for you, free of charge.

If you’re interested in transferring your pension or want to find out more about the Moneyfarm pension, get in touch with a member of our investment advisory team or take a look at our pension.

FAQ

When can you consolidate pensions?

You can consolidate your pensions at any time, but the new or existing pension provider eligibility requirements for a pension transfer need to be met. However, before making any financial decision, please be aware of the pros and cons of combining your pensions. Combining some or all of your pensions may not be the best option, and making the wrong move can have an adverse effect on your retirement goals. You should consider a pension consolidation as you approach retirement age.

How do I consolidate my pensions?

You need to gather as much information regarding your pensions. Find and contact your pension providers to get transfer charges and other information, such as balances, investment strategies, and pension type. Choose a new provider that offers the pension plan you want and offers consolidation services. Arrange for your pensions to be transferred to the new pension provider.

Should you merge pensions?

Merging pensions is a personal decision based on individual circumstances and financial goals. There are several advantages and disadvantages of a pension combination. Some advantages include easy management and simplification of your retirement savings and the reduction of administration fees. Disadvantages may include loss of benefits and guarantees.

Before making a decision on “should I consolidate my pensions?” it’s essential to review each plan’s fees, investment options, and any potential penalties. Always seek professional financial advice if you are unsure to ensure you make the best decision