Consolidate your pensions
The days of a job for life are long gone. The average person now has more than 10 jobs in their lifetime and the working life of future generations is likely to be even more eclectic, with periods of self-employment, grown-up gap years and entrepreneurship on the cards.
This can play havoc with your pension planning. It means people often have small pension pots all over the place. This is clunky to administer and makes understanding how much you’ve got and when you can retire more difficult.
Research from the Association of British Insurers (ABI) estimates that ‘lost’ pension pots may be worth as much as £19.4bn and affect 1.6m people. It’s easily done – you forget to notify your pension provider when you move house or you lose the paperwork. Consolidating your pensions can give you a fighting chance of keeping everything in order.
Why do it?
If your pensions are all in one place, they are usually easier to monitor and track. You have one password and you’ll know exactly how much you have. Equally, it’s easier to manage the underlying investments and to choose the right investment path for you, rather than having lots of disparate pots, each managed in a different way. For those who want their money to do good, it can also be a way to choose sustainable options.
What can you do?
Your first job is to work out what you’ve got. That means digging out all the paperwork. If you think you’re missing some, you can use the Government’s pension tracing service here. You don’t need to pay for this. You’ll need your NI number and the names of your previous employers. You can also use it to find previous personal pension plans, but you’ll need the name of the provider.
Then you will need to look at transferring those pensions to your chosen provider. If you pick the right provider they will do the hard work for you. This can be valuable. Recent research from PensionBee found that only 26% of consumers found switching their pension provider easy, compared to 73% when it comes to home or contents insurance and 69% for energy providers. The group found it could take as long as 40 days.
You need to make sure you’re not getting charged more than you should for transferring your old pensions. Pension savings are valuable and losing 1-2% with each transfer may not feel like a lot, but can erode your savings over time. Go for a provider whose fees are transparent and easy to understand.
Are there any pitfalls?
There can be complexities if you are trying to consolidate a defined benefit (final salary) pension scheme. In general, you can’t transfer many of the public sector pension schemes, such as those for teachers or the NHS. For other schemes, you have to seek advice if the pension is above £30,000 and most advisers recommend doing it for pots of less than £30,000 as well.
If you have a pension through your workplace, it generally makes sense to stick with this. Employers have to contribute by law – and if you move your pension, or ‘opt out’, you will lose the freebie extra from your employer. It’s typically best to leave your current pension through work where it is, and to look at consolidating any old pensions or personal pensions held elsewhere.
How much will it cost?
If you aggregate your pensions online, you should expect to pay in the region of 1% a year all-in. Of this, about 0.4% will be for the administration and about 0.4% - 0.6% will be for the cost of the investments which sit inside your pension. So – if you add together pensions which total £10,000, you will pay about £100 a year in charges.
Useful resources
Transferring your pension - Government
Find your pension contact details
