Reviews and Ratings for Financial adviser Chris Wheatman, Lancaster

Consolidation: Why it could help you beat the challenge of keeping track of pensions

Your pension might not be something you think about often. Unlike your current account or even ISA, it could be decades before you’ll be able to access it. So, it’s not surprising that keeping track of pensions isn’t a priority for many people. However, it’s important for effective retirement planning and ensuring you’re on track. For some, pension consolidation makes the task easier.

For many workers, pensions are becoming more difficult to keep track of for two reasons:

  1. Under auto-enrolment, most employees will now benefit from a workplace pension. While this means more people are saving for their retirement, it also means more workers now need to keep track of their pension savings.
  2. Alongside auto-enrolment, it’s become more common to switch jobs. According to Scottish Widows, the average employee will change jobs 11 times in their working life. That means the average person needs to keep track of multiple pensions.

As it’s not something you’re likely to think about every day, losing touch with a pension can be easier than you think. Not updating your address when you move can mean it’s easy for small pension pots to slip your mind.

In 2020, the Association of British Insurers (ABI), found just 1 in 25 people consider telling their pension provider when they move home. As a result, ABI estimated that there are around 1.6 million “lost” pensions, worth £19.4 billion in total. While small pensions may seem like they’ll have little impact on your retirement, they can help you reach goals, especially when you have several.

If you’re reviewing your pensions, the first thing to do is make sure you have the details for them all. If you’ve “lost” a pension, the government’s tracing service can help you track it down.

Why pension consolidation is worth thinking about

Pension consolidation means combining pensions into one pot. It can make it far easier to keep track of your retirement savings.

Having all your pension savings in one place means it’s easier to manage and see if you’re on track to reach retirement goals. It can also help you understand how to access your pension at retirement and create an income that suits you.

For some people, consolidating pensions could also reduce the total fees paid. It could mean more of your money is invested to deliver a larger sum when retiring.

In most cases, consolidating your pensions is relatively straightforward. However, the Scottish Widows research found that 1 in 10 savers had no idea it was an option, and 12% said it was too much hassle.

So, it’s not surprising that almost three-quarters of Brits (72%) would like to see a new system that automatically consolidates their small pension pots as they move jobs.

While this could make managing pensions simpler for workers, it’s not something that will be introduced any time soon. As a pension saver, you’ll need to take control and consolidate your pensions yourself. To do this you’ll need to contact the pension provider you want to transfer to and check they will accept the transfer and then complete a form.

Before you consolidate your pensions, there are two things you need to think carefully about: which pension provider to move your savings to, and whether it’s the right option for all your pensions.

1. Choose a pension provider to transfer to

If you want to consolidate your pension, you’ll need to choose a pension provider to move your savings to. This could be a provider that already holds some of your savings or a new one.

At first glance, pension providers can seem similar. However, things like fees, fund options, and investment performance, can all have an impact on your savings and, in the long term, your retirement. It’s important to choose a provider that makes sense for you. Remember: your pension is a long-term investment, so you should consider the impact over the time frame you’ll be saving into a pension.

We can help you compare pension providers and answer any questions you may have when deciding where to place your retirement savings.

2. Check if transferring out of a pension is right for you

Pension consolidation can make it easier to manage pensions, but you should review your existing pensions first. In some cases, transferring out of a pension could mean you lose valuable benefits.

Some pensions, for example, will allow you to take a lump sum or income earlier than normal, or provide a pension for your spouse. If you transfer out, you’d lose these benefits, and another provider may not offer them. Assessing your existing pensions to understand what they offer and how the benefits could fit into your retirement plan is a crucial step to take to ensure you make the right decision for you.

If you need help managing your pensions and understanding what they mean for your retirement, please contact us. We can help you understand if consolidating pensions makes sense for you and how to proceed if it does.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

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