Should I Combine My Pensions?


Here we explain the benefits of consolidating your pensions into one pot and some key factors to consider before you combine them.

Nowadays people tend to have 3 or 4 jobs throughout their career, and as a result, many people accumulate several pension pots during their working life. With the introduction of auto-enrolment, employees are automatically opted into a workplace pension via their employer, and if they leave to start a new job, they are automatically enrolled into another pension scheme. 

If you have several pensions it can be difficult to keep track of what pensions you have with which providers, how they’re performing and how each one contributes to your wider retirement plan. If you’ve changed jobs it’s likely that you have some pension pots that you’re no longer contributing to. You might even have some pensions that you have forgotten about and lost track of along the way.

The benefits of consolidating pensions

There are several reasons why it’s a good idea for most people to combine their pensions.

1. Admin – it’s easier to manage and keep track of your pension savings with just one scheme.

2. Visibility – by consolidating you can gain a more accurate view of your overall pension savings and whether you are on track to reach your retirement goals.

3. Reduce fees – you could potentially reduce the fees you pay as you’ll be paying just one set of fees for one scheme instead of multiple fees across several schemes. What’s more, older pension schemes tend to have higher charges and so you could reduce the overall costs by switching to a provider with more competitive fees.

4. Investment performance – schemes with high charges and poor performance can be detrimental to the growth of your pension. By combining your pensions and switching to a provider with better performance and more competitive fees, you could potentially increase the amount of pension income that you’ll eventually receive.  

5. Investment options – by switching providers you could gain access to a wider range of investment options that are more closely aligned with your values, objectives and appetite for risk. 

Taking these benefits into consideration, the sooner you consolidate your pensions the better. Firstly, the cost of transferring your pensions will likely be more cost-effective now than it will be in the future because fees are charged as a percentage of the value of your pension. And so as your pension increases in value, so will the cost of consolidating. Secondly, the longer you leave your funds in an underperforming pension, the more growth potential you are missing out on. 

Is it better to combine pensions or keep them separate?

Before consolidating your pensions into one pot, there are some important factors to consider.

  • If you have a final salary scheme, also known as a defined benefit scheme, it’s best to leave your funds where they are. Final salary schemes come with certain guarantees that you cannot transfer elsewhere.
  • Some older pension funds come with attractive benefits that you would lose if you transferred your funds to a different scheme. For example, a guaranteed annuity rate or more than 25% tax-free cash.
  • Some pension schemes have high exit fees which could have a significant impact on the value of your pension. 

If you are thinking about combining your pensions you should seek financial advice to understand your options and make sure that it is the right decision for you. At SN Financial our trusted advisers offer expert pension advice tailored to your individual circumstances and can recommend the most suitable option for you.

The value of your investments can go down as well as up.  Past performance is no guarantee of future performance.

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