Top Tips for Pension Consolidation: How to Simplify Your Retirement Plans
If you're like many people, you’ll have multiple pensions from previous jobs. This can make it difficult to keep track of all your retirement savings and plan for the future.
Fortunately, there is a solution: pension consolidation. In this blog post, we will discuss the top tips for consolidating your pensions and simplifying your retirement planning process. Keep reading to learn more!
If you don't know what to do with your numerous pensions and are unsure whether your money is working as hard as possible for you, pension consolidation might be worth looking into.
Given that the Gov.uk website estimates that a person has an average of 11 jobs throughout their life, amassing many pensions isn't difficult. It might be difficult to keep track of your retirement savings, especially if you've been enrolled in several pension plans throughout the years. Consolidating pension pots into one location may make managing your resources simpler
Here is a guide to how to consolidate pensions and whether doing so would be a good idea for you.
What is pension consolidation?
Quite simply it's the act of combining several pension pots into a single scheme or retirement product and is known as "pension consolidation." Many individuals prefer to do this to make managing their retirement funds and monitoring their progress easier.
If you’ve had multiple pensions running, what results is potentially a lot of paperwork to stay on top of it all. It’s time-consuming to manage and one of the main reasons pension consolidation is so popular.
Should I combine my pensions?
The first thing you should ask yourself before combining pensions is whether or not it's worth it.
It's simple to monitor how your money is invested and keep fees to a minimum by combining pension pots. You will also get only one pension statement each year that details your retirement savings' present value, the amount you are paying in fees, and what type of retirement income you could receive.
When it comes to your retirement, having everything in one place may make things easier for you by eliminating the choice of how to withdraw money from several pension pots.
However, you must consider whether you will be missing out on essential advantages if you move, and whether your transfer would incur additional costs. If you have several pensions and aren't sure whether combining them is the best option for you, keep reading to learn more.
Can I have more than one pension? Is that OK?
Yes, there is no restriction on the number of pensions you may have. This might include both public and private pension plans, as well as defined-benefit pensions. You can contribute to multiple plans at once. There is however a limit on how much you can receive tax relief.
Keep track of the amount in each pension pot if you have a defined benefit or are presently participating in a workplace plan. However, combining other pensions might provide benefits. It may be simpler to manage any changes to your information, such as when you move house, by consolidating your savings.
Combining different types of pensions
There are a few things to consider before combining pensions.
As a first step, see what types of pensions you have. If any of your pensions are defined benefit plans, sometimes known as final salary pensions, they may provide significant advantages that you should consider keeping.
It is typically simpler to combine defined contribution plans. The amount you will get at retirement depends on the size of your contributions and how the investments they have invested in have performed.
Top Tips when deciding if you want to combine your pensions
#1 Check your charges
If you're wondering whether to move your defined contribution plans, look at how much you're paying in fees. The charges on older pensions are frequently higher, so you may be able to save money by moving your pension to a lower-cost plan.
#2 Check your pension performance
How has your pension done over time? It’s worth examining your pension's performance. If one or more of your retirement plans has produced less than average results when compared to the rest, it may be time to move your funds to a different pension or alter the funds inside the underperforming plan.
Check the options available on your current pension plan before merging it. Unless you actively pick where you want your money to go, most pension plans will invest your funds in their "default fund."
This type of fund invests your money in riskier assets for a longer period of time, then gradually diversifies it into safer ones such as bonds and cash as you approach retirement. However, there may be alternative funds to consider that are more suited to your needs.
It's important to remember that when you move your existing pensions to a new plan, you must sell your pension investments before your money can be invested in the new plan, so you'll be "out of the market" while you migrate. If markets decline during this period, you will not lose any money. However, you must remember that you will not benefit from any investment growth during this period either.
#3 Check for exit penalties
Pensions may charge an exit fee if you want to move your money elsewhere, so check whether the costs outweigh the benefits before transferring your pensions into one plan or not.
Want more information and advice on pension consolidation?
Pension consolidation is a key financial consideration. Ultimately it can make life a little easier and enable you to keep your finger on the pulse with your pension performance. If you’d like to talk to us about your options please do get in touch today.
Please note, the information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction.
A pension is a long-term investment. The fund value may fluctuate and can go down.
Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.