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Consolidating pensions: Should you combine your pensions?

As savers look for simple ways to manage their pension pot and save on fees, many are choosing to combine their old pensions into one pot. This guide will demystify the process, allowing you to decide whether consolidating your pensions is the right choice for you.

What is pension consolidation?

Simply put, pension consolidation is the process of merging your different pension pots into one place. This can make your pensions easier to manage your and cheaper to run.

We know that financial security in retirement is a priority for many savers, but it can be difficult to understand exactly what you’ve got, what you need to achieve your dream income and what you need to do to get there.

With the average person having over 11 different jobs in their lifetime, they probably have multiple different pensions to keep on top of. No wonder the government predicts there will be over 50 million dormant or lost pensions by 2050.

If you’re unsure whether you’ve misplaced an old pension, you can use the government pension tracking scheme set up by the Department for Work and Pensions.

Consolidating your pensions into one place makes it easier to see how your investments are performing and know exactly what you’re paying in fees at any time.

Transferring old pensions is pain-free with Moneyfarm and doesn’t cost a thing – although it’s worth checking to see if your existing provider levies any fees for transferring.  

What are the benefits of combining multiple pension pots?

There are a number of reasons why you might think about transferring your pension:

  • You want a different pension service to the one your provider is offering
  • You want to consolidate your old pensions to simplify your plan
  • You want to pay less in fees
  • You want a higher income
  • You’re moving abroad and want a local scheme
  • Some older schemes may not offer certain freedoms, like UFPLS (uncrystallised funds pension lump sum)

Below we take a look at some advantages in more detail.

Help your money grow faster

Compound interest is one of the most powerful forces in the world of investing. This is when the return you generate on an investment is reinvested and then earns its own return, and can make a real difference to the value of your pension over the long-term. When your pension is split into different pots, the rate of growth won’t earn the same momentum as it would if your savings was in one.

Avoid expensive fees

Charges on pension pots can vary greatly, but often management fees reduce the more you have invested. If you have your savings split into smaller pensions with different providers, you could be paying more on average than if you put your pots together.

Understand your investment strategy more easily

Keeping on top of how your investments are performing, how much you’re paying and whether you’re on track to reach your goals can be tough when you have multiple pensions. Putting your pots in one place makes it much simpler to understand where you are, where you want to be, and how to get there, putting you in control.

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What you should consider before consolidating your pensions

The industry is more flexible than ever before, which allows consumers to make the adjustments they need to get the retirement income they desire.

While the benefits to combining your pensions is clear, there might be times when you’re better keeping your pots separated. If you’re unsure, we recommend seeking independent financial advice.

You may lose employer contributions

Withdrawing your money from an existing workplace pension scheme early to consolidate it with your other pots may mean you lose some or all of your employer contributions.

You may lose your defined benefit pension and other benefits

The FCA believes defined benefit pensions offer more security than a personal pension, as they offer you a guaranteed income throughout retirement and benefits to a spouse or partner if you die. If you transfer your defined benefit pension you will likely lose these benefits. If your pension is worth over £30,000, you’ll need to have a consultation with an Independent Financial Adviser before you transfer, otherwise many personal pension providers won’t accept you under regulation. You may lose other benefits like guaranteed annuity and loyalty bonuses.

Watch out for transfer fees

The industry has come a long way in terms of transparency over the last decade, with investment solutions being more and more in the customer’s interest as products develop. Whilst digital wealth managers like Moneyfarm do not charge transfer fees for moving your pension to or away from us, some providers do so it’s worth keeping an eye out for unexpected costs.

Our free Pension Drawdown Service helps you make confident, stress-free decisions to stay in control of your retirement income.

You can use our tool to calculate your pension to help you work out how much you need to be saving a month to get the income you want in retirement, or start one of Moneyfarm’s regular investment plans.

How to consolidate your pensions

Consolidating your pensions to Moneyfarm could make it easier to manage your pension pots and cheaper to run.

All you need to do is sign up to Moneyfarm, select the Pension account and authorise an electronic pension transfer. We’ll take it from there. We’ll talk to your existing provider and move your pensions over to your Moneyfarm account.

This process should take three-four weeks, although this depends on your provider. Depending on where you’re transferring your pension from, there may be additional paperwork to sign. If so, we will get in touch.

Let us get you one step closer to securing financial wellness in retirement, allowing you to focus on the important things in life.

Making sure you plan for retirement in the best way for you and your family can be difficult. If you need any help, talk to an independent financial adviser and be sure to read our pension guide.

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As with all investing, your capital is at risk. The value of your portfolio with Moneyfarm can go down as well as up and you may get back less than you invest.