Bringing your pensions together

Most of us will move jobs quite a few times during our working life. That can mean multiple pensions to keep track of and maybe even losing track of money you’ve saved for the future. One choice is to bring them together into one retirement pot.

Should I combine my pensions?

Depending on your needs and the kind of pension you have, it could make sense to combine and transfer your pension pots to one easy-to-manage account, like a self-invested personal pension managed by EQ Investors.

A clearer picture of your total savings

One of the major advantages of combining your pensions is gaining a clearer understanding of your financial situation.

When your pensions are scattered around it can be hard to see how your retirement money is shaping up. When you put them in one pot it can bring things into focus. You may have more money than you expected. Or it could be a good incentive to start saving more.

It’s also much easier and less time consuming to keep track of one pension than half a dozen. You won’t have different accounts with paperwork and login details to deal with. And if you do something like move house, you won’t have to worry about notifying several pension providers.

Reduced costs

Potential savings on cost may be another compelling reason to combine. Each scheme typically has its own associated fees, which can include annual management charges, transaction costs, and other administrative expenses.  

For smaller pots, these costs can disproportionately affect your savings. By merging your pensions into a single, competitively priced scheme, you may be able to reduce these costs and preserve more of your money for the future. 

Where is my pension invested?

When saving into a pension, you can choose a pension fund that aligns with your values as well as your long-term goals. 

To start, look at your current investments in your pension and decide if these align with your ethical values. You can check your pension investments by logging onto your providers online portal or contact your pension provider and find out what funds you are currently invested in.

Once you know this, do some research on these funds, such as finding the fund factsheet. The factsheet will tell you a bit about the fund and if the fund has any ethical considerations or exclusions this will usually be mentioned.

What to consider before you combine your pensions

Before combining, it’s important to ensure that you are not transferring away from a pension that has certain guarantees. Often these valuable benefits would be lost on transfer and therefore it is important to speak to a financial planner to consider your options. 

Defined benefit schemes

Consolidation isn’t always the best way forward for all your old pensions. A defined benefit (DB) pension scheme, sometimes known as a final salary scheme, provides the security of a guaranteed inflation-linked income and death benefits for a surviving partner. That makes them extremely desirable compared with investment-based (defined contribution (DC)) pensions.

If the transfer value of a DB pension exceeds £30,000 you are legally required to take financial advice. It is likely to be in the best financial interests of most members to remain in the scheme.

Exit fees

The cost of transferring varies between providers. Whenever you move pensions, there are considerations to be made and one of them is the exit costs versus the cost of the new pension. Exit fees are capped if you are close to retirement, so in a lot of cases, the exit costs go down with time.

To balance out the trade-off between the exit charges and potential reduced ongoing charge, you need to compare five years’ worth of charges on the one new plan against the exit charges from all the plans you are looking to combine and then make an assessment. If you’re not planning on touching your pension for another 10 years or longer, then some penalties would become cost-effective in the long term because you will be saving over the longer term.

Final thoughts

Pension consolidation can offer significant benefits, including simplified management, cost savings, and improved retirement outcomes. However, it’s not without risks, and the decision to combine should be made carefully, based on a thorough evaluation of your existing pensions and a clear understanding of your retirement goals.

If you’re considering combining your pensions, take the time to research your options and seek professional advice where possible.

A financial planner can help you navigate the complexities of pension consolidation, ensure that you make the most of your savings, and create a solid foundation for a financially secure retirement.

Do you need help?

Our financial planners are experienced at carrying out transfers and consolidation for clients and can help you avoid any pitfalls. Please get in touch to discuss how we can help you.

Please remember, this content is provided for information purposes only. Investment involves risk. Past performance is not a guarantee or indication of future results. Investment return and the principal value of an investment may go up or down and may result in the loss of the amount originally invested. All investors should seek professional advice prior to any investment decision, to determine the risks associated with the investment and its suitability.