1. It can make it easier to keep track of your pension savings
One of the key benefits of consolidating your pensions is that keeping track of a single pot is often much easier than managing several.
If you change jobs several times, you could easily end up with multiple pensions that you need to review annual statements for and make sure the details are up to date, such as changing your address if you move. It means you’re more likely to lose the details of a pension and potentially overlook some of your savings.
Multiple pensions can also make it more difficult to understand if you’re on track for retirement. While pension providers will forecast the value of your pension when you reach retirement age, how they calculate this will vary.
2. Consolidating your pensions could lower the amount you pay in fees
Your pension provider will charge a fee for managing your retirement savings. Each provider will have their own fee structure, so it’s important to understand what you’re paying.
You may pay an annual management fee, which will cover the cost of running your pension. This is often a percentage of the value of your savings. You are also likely to pay fees for your investments, which are often set by investment funds.
Depending on the type of pension you have, you may also pay a platform fee, service fee, or policy fee, as well as others. These fees can significantly reduce the value of your pension and the income you will receive in retirement. So, consolidating your pensions and choosing a provider with lower fees could help your money go further.
This is particularly true if you have an older pension.
While lower fees could help your money go further, they shouldn’t be the only thing you review when deciding which provider to choose. For example, if your investments are performing well, does this balance out a higher fee?
Previous research from the Institute for Fiscal Studies found that some savers could lose thousands of pounds if they do not move older pensions to ones that offer better value for money.
The average annual fee for deferred pensions taken out in the 1990s is above 1.1% of the fund value. This compares to 0.8% for pensions taken out in the 2010s. While the difference sounds small, it can have a much larger effect when you consider how the fees add up over the years.
In addition, the study found that older pensions are less likely to be invested in the way people want.
3. Make the most of your savings by choosing investments that are performing well
If you have a defined contribution (DC) pension, your savings will usually be invested. And the performance of these investments will affect the value of your pension when you retire and the income you can take from it.
So, if one of your pensions is performing poorly in terms of investment returns, transferring these funds to another pension provider could deliver a boost to your savings over the long term.
However, you need to keep in mind that investment performance cannot be guaranteed and past performance is not a reliable indicator of future performance.
As with any investment, you should ensure your pension matches your risk profile, which should consider things like investment time frame, your attitude to risk, and more.
If you have any questions about your investments and your risk profile, please contact us.
4. Fewer pensions can make it easier to take an income in retirement
As well as making your retirement savings easier to manage during your working life, fewer pensions can also be easier to manage once you retire.
If you have DC pensions, you’ll be responsible for deciding how to access your savings and when.
You’ll need to understand whether you want to purchase an annuity, take a flexible income, or withdraw lump sums, and then decide which pot to use. You may also need to factor in investment performance when managing withdrawals over the long term and think about sustainability to ensure you don’t run out of money.
Juggling multiple pots could make this more challenging. Having a single pot to use throughout retirement can make it easier for you to keep track of your savings and the income they’ll deliver.
