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Pension Consolidation: How to Consolidate your Pension

Losing track of a pension can be easier than you might think. People misplace their paperwork, change addresses without informing their provider, or find out that their pension provider was purchased by another company and rebranded years ago. Unfortunately, this is something a large share of UK adults will have to deal with at some point or other. 

The Pensions Policy Institute estimates that 62% of UK adults have multiple pension pots, among which 21% of these – more than 6.6 million adults – are aware of having lost at least one. The potential aggregate value of all of these lost pots stands at £19.4 billion. 

In a post-lockdown world, people’s priorities have changed when it comes to their work-life balance. As a result, more emphasis is being placed on opportunities that offer greater flexibility than a 9-to-5 return to the office. 

So, with people changing jobs more than ever, and auto-enrolment meaning each employer must offer a workplace pension, this trend of lost or forgotten pensions is very likely to increase. This is where pension consolidation can help.

Want to bring your pensions together under one roof? With a Moneyfarm Self-Invested Personal Pension (SIPP), you’re in control of your financial future and have a clear view of how your pot is growing. Get started using the button below. 

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What is pension consolidation?

Pension consolidation means taking all (or nearly all) your pensions and combining them into one pension pot. Your pension pots could be from different employers or even different types of pension schemes such as defined contribution pensions. You may have a private pension as well. Some people pay into both personal and workplace pensions.

You need to decide whether to merge them into one or keep them separate. People often use the consolidation method because they want to simplify their life by managing their money better.

Want to bring your pensions together under one roof? With a Moneyfarm Self-Invested Personal Pension (SIPP), you’re in control of your financial future and have a clear view of how your pot is growing. Get started using the button below. 

Why you should consolidate your pensions

Even the experienced investor, who’s confident about keeping up with all of their pension schemes, can benefit from consolidation. You can cut down on admin stress, potentially lower your ongoing fees, and even get access to certain pension freedoms not currently offered in your existing schemes. 

Removing complexity and adding more transparency to your pension savings can allow you to focus on the important questions in life. From “when is it likely I can afford to retire?” to “how many additional savings do I need to reach my goals?” Having a more precise picture today can make for an easier tomorrow – reducing the chances of any nasty surprises around the corner.

Getting all your pension pots in one place means you can see your savings and cash out all from one platform. In addition, this can potentially save you countless hours going back and forth with paperwork for multiple providers.

Is it convenient to consolidate pensions?

Pension consolidation is very convenient as keeping track of several pensions can be time-consuming. Managing one pension pot is much simpler than managing multiple pensions. More than just checking the balance once a year, managing a pension pot means keeping an eye on the whole thing. 

Managing a pension pot means investing in the right fund, and this will change over time because as you reach the retirement age, your investment strategy will change. For those approaching retirement, a pension consolidation provides clarity and peace of mind, but it can also help you manage your drawdown more effectively. So, combining your pensions will be highly convenient. Refer to this pension guide for more information.

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Benefits of combining multiple pensions

These are some of the benefits of combining multiple pensions.

  1. Costs reduction: Having one pension account cuts costs and fees such as management fees. Over time, these fees and charges can affect the value of your pension savings. 
  2. Time-saving: Having multiple pensions can be time-consuming as you might have to fill out paperwork for several pensions.
  3. Change in strategy: Your investment strategy will change as you approach the retirement age. However, if you want to retire at 55, you will need a different investment strategy. Having only one pension plan for retirement makes strategy transition easier.
  4. Easy supervision: Combining your pensions makes it easier to monitor how well your pension is doing because you can keep track of it. It also makes it easier to manage your pension.
  5. Investment performance: By consolidating your pension pots, the funds in your portfolio increase, giving you the opportunity and flexibility to invest in more expensive assets. You can move your money from non-performing pensions with fewer investment choices to a high-performance pension plan with access to different investment options.
  6. Withdrawal benefits: If you have pensions from before 2015, you will not have access to a flexible drawdown. If your retirement planning goals require access to a flexible drawdown feature, you have to transfer your pension or pensions to a newer pension.

How Moneyfarm can help

With investing, you can’t control how the markets will behave over time, but what you can influence is how much your costs add up over time. With the many different pricing structures between providers and the varying contribution fees or administration costs charged by others, it can be hard to keep track of the final figure. 

According to the Department for Work & Pensions, in its Pension Charges Survey 2020, fees for some workplace schemes can be as high as 0.92%. If you look across the market for a private pension, the charge could be above 1%. By consolidating your pensions into a low-cost alternative, you could get more back for your retirement, along with a clearer image of how your savings are invested and managed.

When it comes to managing your investments, you shouldn’t have to settle for the default solution offered by your employer. Instead, it can pay to take the proactive (yet simple) approach and have your funds actively managed by our expert portfolio managers. We’ll do the heavy lifting, from daily monitoring to adjusting your investments over time to reflect political and financial developments. So please leave it to us, so you can focus on the things that you enjoy.

If you have any questions, we have a team of consultants at hand via phone, email or live chat. If you want an update on your investments, you can check whenever it suits you through our website or the app. No more yearly statements and no more long telephone queues, being bounced around different departments to finally get the answer you’re looking for. 

What is the process?

Thankfully, we’ve made the whole process simple. You can set up a pension in minutes, see exactly how much you’re paying, and send off for a digital pension transfer through our platform. 

We’ll manage the transfer process for you free of charge, ensuring it’s as paperless – and frictionless – as possible. You’ll just need to know your current pension provider, account or reference number and estimated value. We’ve simplified the service so that mountains of paperwork are now a thing of the past.  

If you need help tracking down a pension, GOV.UK’s Pension Tracing Service can help you find the contact details of your scheme. While their service can’t tell you precisely whether you have a pension or what its value is, it’s an excellent place to start if you’re trying to organise the various retirement funds you might have misplaced.

Other things to consider

Here, we‘ve covered a number of the possible benefits of being proactive and consolidating your pension schemes, but everyone’s personal circumstances are different. Moneyfarm can’t tell you whether or not you should consolidate, and in some cases, you may actually be better off staying with your existing provider. 

You could be holding existing benefits or valuable guarantees that you may not want to lose. For example, some have a guaranteed annuity rate which is significantly higher than today’s, a larger allowance than the standard 25% tax-free lump sum or even a protected pension access age, which won’t increase over time. 

Suppose you consolidate your pensions and the total amount exceeds the pension lifetime allowance of £1,073,100 in the tax year 2022/23, you will face tax charges of up to 55%. This charge can have a significant impact on retirement savings. So, a pension consolidation might not be the best if your pension pot is closer to the pension lifetime allowance figure.

For older legacy pensions, you could also be subject to hefty exit fees, such as a with-profits market value reduction, and if it’s your existing workplace pension scheme, your employer may only keep making their contributions to the company’s nominated scheme. This means that it probably makes more sense to wait until you leave the company before moving this across, to ensure you retain their continued matching.

For many people, consolidating pensions can make life easier. The ability to view all your disparate pots in one place, monitor the fees you’re paying, and access it more easily when you need it can make a huge difference. 

As you consolidate your pensions, check the terms and conditions of your old pension providers before initiating a transfer. Also, ensure that the pension you are transferring to is authorised and regulated by the Financial Conduct Authority. A financial adviser at Moneyfarm can help guide you through the process. If you want to see what a Moneyfarm pension could do for your retirement, check out the full breakdown of our service here.

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