Consolidating your pensions
Employer pensions can accumulate as we change jobs, and it’s easy to lose track of how much each one contains. We explore what you need to know if you’re thinking about consolidating your pensions.
When you leave a job, it’s easy to forget about the workplace pension you might have had there. With the average person having several jobs during their lives, along with the 2012 introduction of auto-enrolment for employer-based pensions, it’s not surprising that many of us have more than one pension to our name.
Whatever the situation with your workplace pensions, the first thing to do if you’re thinking about consolidation is to speak to a financial adviser. We can help you figure out the best solution for your individual needs.
Tracking down your old pensions
All pension providers are obliged to send members of their schemes annual statements to keep them updated on how much their pension contains.
The Association of British Insurers (ABI) estimates 1.6 million pension pots worth billions of pounds are forgotten about due to people just moving home. So it’s vital to write to your old pension providers to let them know if your address changes.
The government is in the process of launching a dashboard where all pension providers will be able to input member details, giving customers the ability to see their pensions in one place. But the process will take some years for all providers to supply their data.
Consolidating your pensions
As to whether you should consolidate your pensions into one pot, the first step should be to check the small print. If you have an older pension (around 20 years or older), you could lose some of its benefits if you transfer and be left with steep exit fees taken out of your pension amount.
Unlike older pension schemes, the newer ‘defined contribution’ pensions are more common and less likely to be affected by exit penalties if you want to transfer them into one place. The funds are invested, which makes consolidation an attractive option.
It’s worth noting that if you’re still paying into a defined contribution scheme and want to withdraw from it, the amount you can pay in and claim tax relief on could reduce.
On average, management fees for workplace pensions are around 1%. Newer pensions could benefit from tax benefits that older ones don’t come with, so it’s always worth checking each policy individually and get some advice from a financial adviser.
Leaving older pensions where they are
Along with exit fees and tax privileges, pre-2006 pensions (that were not affected by tax changes established in 2006) could have benefits like guaranteed annuity rates(promising a guaranteed income after retirement), which could be lost if transferred to another pension pot.
Final salary scheme pensions are probably best where they are, too, due to the nature of their payouts when you retire (based on what you earn at retirement.)
Some people opt to create a self-invested personal pension (SIPP), which lets them choose where their pension money is invested. This is beneficial to those who want to puttheir money into sustainable funds and make ethical investment choices.