Should you consolidate your pension pots?
If you have paid into several different pensions over the years and find it hard to stay on top of all the paperwork, you may be considering consolidating your pensions into one plan.
According to a study by Aegon*, more than one in five people have lost track of some of their pension savings, and 30% of people don’t know the total value of their pensions.
With such a large proportion of people losing track their pensions, it is clear to see why people decide to consolidate.
Kate Smith, head of pensions at Aegon, said:
“It’s notoriously difficult for people to keep track of small pension pots, particularly at the beginning of someone’s working life. Consolidation of small auto-enrolment pots along the way will help people keep track of these.”
Here, we explain some of the advantages and disadvantages of combining all your pensions in one place.
Pros of Consolidating
- Ease of Administration – Putting all your pensions together under policy allows you keep to track of your pension’s performance in real time, making the process far more convenient than dealing with several providers. This is especially beneficial at retirement when you only must deal with receiving your pension income from one provider.
- One risk profile – People who took out pensions at different times over a long career tend to have different risk profiles assigned to each one, depending on their objectives at the time. Having multiple risk strategies running in tandem is unlikely to match personal objectives and time frames, consolidating makes it very easy to assign one level of risk to the overall portfolio.
- A centralised investment strategy – Similarly, people with multiple pension pots are likely to have multiple investment strategies all potentially pulling in different directions. It could be beneficial to assign one investment management team to look after the overall pension, meaning you get the correctly diversified portfolio for you aims and objectives.
Cons of Consolidating
Before consolidating it is important to understand if you are giving anything up in the process. We therefore always recommend getting advice.
- Employer contributions –For example, you might lose employer contributions if you transfer funds from a workplace pension that you’re still an active member of.
- Bonus eligibility – You may also have to forfeit any loyalty bonuses you might have been eligible for and there’s a risk you’ll no longer be eligible for a spouse’s pension if your previous scheme offered this as a benefit.
- Exit penalties –Another potential downside is that when you transfer funds out of a pension, your provider may impose an exit penalty, so make sure you find out if there is one and how much it will cost you.
Why use W1 to help consolidate your pensions?
- We do all the leg work – Chasing pension companies for transfer values and paperwork is not fun. We have a dedicated team who do all this on your behalf, saving you time and keeping you sane.
- We can help you track lost pensions – All we need is you work history and we will work on your behalf to find any missing pensions.
- It costs less than you think! – You could have your pension looked after by us for a total fee of 0.95% per annum*.
This includes ongoing Financial Advice, Investment Management, underlying investment costs, platform fees and pension trustee costs. We are always upfront and transparent with our charges and represent fantastic value for money in the current marketplace – even when compared to the low cost robo-advisers!
- Advice on future contributions – What is the most tax efficient way to save going forwards? Pension or ISA? Should I save money into my spouse’s pension? These are questions with no set answers and we can advise based on your personal circumstances.
- Advice at retirement – New pension rules allow you to take what you want from your pension, but with people living longer careful financial planning in retirement is vital. We create you a drawdown strategy to ensure your pension and other assets are there to provide for you for the rest of your life.
- You pension is in good hands – We have access to some of the top UK Investment Management Houses who will look after the investments within your pension, meaning it will always be fully diversified around your risk profile and objectives.
** Based on a £250,000 portfolio using a passive investment strategy.