Should You Combine Pension Pots?

Some people only have one pension pot but according to one recruitment site, the average person will have six pension pots in their lifetime. For today’s millennials, this figure could rise, as they are less likely to stay in one job for the long term. They are more likely to have twelve jobs in their lifetime, according to research. 

The problem with several pension pots is that they can be tricky to stay on top of. This is why many people decide to consolidate them, as it can be an effective way to stay on top of retirement savings. 

If you have more than one pension scattered amongst different providers, it might be that consolidating them into a single pension scheme is right for you. There are several benefits to do doing so, not least the opportunity to boost your savings. However, depending on your personal circumstances, you might decide to keep your pensions where they are. We look at the pros and cons of pension pot consolidation below.

Reasons To Consolidate Your Pensions

Should you consolidate your pensions? It’s not always a straightforward decision, but it is worth considering the benefits of doing so. These can include the following.

You will have all your money in one place

You will have a better idea of what your retirement might look like if you have all of your pensions in one place. You will also have a better understanding of your pension savings and whether or not you have enough money for your retirement goals. If you realise you don’t have enough, you will have the incentive to make more savings to ensure you can retire comfortably.  With all of your pension savings in one place, you will also have less paperwork to deal with later. This will save you a lot of stress when it comes time for you to cash in the money sitting in your pension pot. 

You could save money when combining your pensions

Each pension pot has to be managed separately, and as such, each one will have annual management fees. Fees could be as low as 0.5 per cent but some companies could charge higher. When you consolidate your pensions into a pot with small management fees, you could make considerable savings and have more money sitting in your nest egg. 

By consolidating, you will also avoid the hidden charges that some providers sneak into the small print. These can include contribution fees and investment charges. Thankfully, steps have been put in place to make pension fees more transparent, but you might still fall into the trap of being overcharged for the older pension pots that are in your name. By consolidating into a singular pension pot, you will be able to make more informed choices when choosing a provider. 

There is the potential for better fund performance

If you have several pension pots, it is likely that some will be outperforming the others. If you are happy with the return on your investment you might decide to keep your money where it is. But if there is a chance to boost your retirement savings with a brand new pension fund, then it is worth investing your money elsewhere. By switching your pension to a fund with lower fees, you will automatically get a better return on your investment. Check on how well your current pension pots are performing before you make the decision and speak to a financial adviser for advice.

Reasons Not To Consolidate Your Pension Pots

Consolidating your pension pots before you retire can be a wise move, but there are some circumstances when you might decide not to. These include the following.

You don’t want to lose your final salary pension

If you have a final salary pension (also known as a defined pension), it is sometimes wiser to keep the money where it is. This type of pension safeguards you by giving you a guaranteed income for life and is protected by the Pension Protection Fund. Depending on the value of this pension, you might be worse off if you transfer it, so it’s worth seeking financial and legal advice before you come to the decision. 

You don’t want to let go of your safeguarded benefits

Safeguarded benefits are those that have been promised to you by your pension provider. A common example of a safeguarded benefit is the final salary income that we mentioned above. Other benefits can include guaranteed annuity rates and protected tax-free cash, as well as additional insurance benefits, such as Critical Illness Cover or Life Cover. By transferring your pension, you might lose some of these benefits so it is always worth speaking to a financial adviser before coming to a decision. 

You don’t want to cover the exit fees

Exit fees are usually a percentage of your pension savings so it is always worth checking on these with your pension provider before you transfer your pension. This isn’t to say you shouldn’t consolidate your various pension pots as the long-term savings you make could still be substantial. Still, it is worth giving it some thought before going ahead, as you don’t want any nasty surprises sprung on you by your pension provider.

Should You Combine Your Pension Pots?

Combing pensions is often a good idea as you are sometimes guaranteed a greater return on your investment. That extra money could come in very useful during your retirement so pension pot consolidation is certainly worth considering. However, there can be drawbacks so it is important to consider your personal circumstances before transferring your money. 

For more advice, get in touch with us today. If it is right to do so, we will combine your pensions into a pension pot that suits your financial needs and we will manage your pension for you. If you have any questions or concerns, let us know, and we will help you make the decision that is right for you.

Looking for expert financial advice? Get in touch to speak to an adviser

Risk Warning
Any investment carries a degree of risk and your investments may decrease in value or fail. The levels and bases of taxation and reliefs can change at any time and are dependent on individual circumstances.