Consolidate Your Pensions
Financial Planning

Reasons to Consolidate Your Pensions

Many people have multiple retirement accounts and pension plans. Consolidation might be helpful.

Many people have multiple retirement accounts or pensions. It can be a hassle keeping track of them all. This is one of the many reasons you should consolidate your pensions. Another reason to consolidate your pensions is that it can reduce the amount of administration fees you pay. This in itself is a financial benefit you might want to consider. 

Retirement account and pensions fees really add up. Many service provides charge an administrative fee, and on top of that if you hold mutual funds or exchange traded funds (ETF) in your portfolio, the fund may also take fees out.

If you do decide to consolidate your pensions into one scheme, you will also get the chance to rebalance your holdings. You will also be able to take a look at all of your holdings and get rid of any underperforming or stagnant pension plans or positions.

Do you have multiple pensions?

You might be reading this thinking who would have more than one pension pot and not be aware of them? In reality, it is not uncommon for people who have had several jobs throughout their career have many pension pots. These individuals may have lost track of their pensions, or may not have even known they received them at all!

Since 2012, employers have been legally required to provide pension schemes for their employees who meet the following qualifying criteria:

  • They are employed by the company.
  • Their salary is at least £10,000 per year.
  • They are aged over 22.

Therefore, if you have had more than one job since 2012, you could well have several pension pots. Some of these could be worth a considerable amount. It is definitely worth conducting due diligence and looking into if you have lost track of them. If you do find pensions you forgot about, it is probably safe to say you have had them for years without knowing. If this is the case, your investment objective, time horizon, and risk tolerance probably all have changed. This means that you need to look at the pensions holdings.

Managing investment positions, deciding where to invest, and financial planning as a whole can be complex. It is always recommended that you use the services of a regulated advisor like Portafina when making financial decisions.

How can you locate ‘lost’ pensions?

If you think you have lost, misplaced, or forgotten pensions, you have two options for locating them.

  • Gov.UK Pension Tracing Service
  • Independent pension tracing company

Using the Government Pension Tracing Service is relatively straightforward. All you do is input some basic information regarding your employment and hit search. 

If you don’t want to spend the time doing this, you can use an independent pension tracing company. Their first point of contact will be the Government Pension Tracing Service, so you will still need to provide them with the same amount of details as you would’ve required yourself.

Before agreeing to use one of these companies, you should know what you’re signing up for. You would not want to discover that you’d signed up to something more than them tracing your lost pensions.

Consolidate Your Pensions to Save Money

As you’re likely aware, your pension comes with a set of management charges. If you’re not sure what the charges are, be sure to reach out to your provider as soon as possible. It is important to find out what you’re paying.

Some pensions come with straightforward and transparent charges, but other schemes are less clear. For instance, two identical pension schemes provided by two different companies could have pension charges which vary by around 0.5% per year. 

At first glance, this may not seem like a lot. However, when you consider fees over the lifetime of your pension, it can really add up. This is especially true due to the power of compound interest. At the end of the day, a fraction or whole percentage point over years and years really will become significant.

Combining your pensions into one with the lowest fees could have a considerable effect on your pension pot. This means more money for you when you decide to start collecting.

How do you consolidate your pensions?

In many cases, you can combine your pensions yourself. There are also regulated companies that will combine your pensions on your behalf. It may be worth looking into one of these companies. They can be a great resource and answer all of your pension related questions.

You also have the option of using an independent FCA-regulated financial advisor to combine your pensions.

Why should you use an FCA regulated financial advisor?

When you use a financial advisor to combine your pensions, that is not the only thing they will do. They will look at your pensions and assess the advantages and disadvantages of each, along with your pensions’ values.

They may advise you that combining your pensions is not the right thing for your situation. However, ultimately the decision of whether to do so comes down to you.

Using a regular financial advisor also comes with other potential benefits. For instance, an ILC-UK study from 2019 showed that people who seek professional financial advice have an average of £30,000 more in the pension pots than those who did not.

Can you combine your State pension with other schemes?

You’re unable to combine your state pension entitlement with other pension schemes. The State Pension is paid as a benefit when you reach the qualifying age. The amount you receive depends on how many years’ worth of National Insurance contributions you have made over your working career.

Details on how to Consolidate Your Pensions – Summary

There are many factors to consider if you are thinking if you should consolidate your pensions. Depending on your situation, it may be the right thing to do. If you are unsure of the benefits, do not hesitate to reach out to your financial advisor. A financial advisor will be able to detail all of the benefits and advantages such as a reduction of administrative fees. They will also be able to discuss any possible disadvantages of consolidating pensions with you. Remember, everyone’s position and financial goals are different.

For more articles like this, be sure to check out the financial planning section of the site.

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