Our Financial Adviser, Hannah Heslop, explains why it may be time to consolidate your pensions.
Jobs aren't for life like they used to be, more and more of us are changing jobs more frequently and with the introduction of auto-enrolment in 2012, it isn't surprising to learn that many of us have more than one pension in our name… and it's very easy to lose track of them, particularly if they date back some years ago and you've changed address. Here I explore what you need to do if you're thinking about consolidating your pensions.
Track down your old pensions
If you've moved home and not informed your pension provider you may not be receiving your annual pension statement and as a result have no idea how much your pension is worth. It is estimated that 1.6 million pension pots are forgotten about due to people moving. As a priority write to your former pension providers and let them know your change of address.
If you are unsure who your pension providers are, go on to the government pension tracing website https://www.gov.uk/find-pension-contact-details and fill in the relevant details. They should be able to provide you with details of your previous pension providers.
Consolidating your pensions and leaving older pensions where they are
There are lots of things to consider if you're looking to consolidate your pensions into one pot. The older version pensions (final salary) for example may have safeguarded benefits and guarantees that you could lose if you were to transfer away from them. It's important to read the small print and understand what you could be giving up. There may also be exit fees that could be applied for leaving the scheme.
Final salary pensions schemes are generally best where they are, due to the nature of their pay-outs when you retire. However, times have changed and a guaranteed income doesn't always meet the needs of the recipient. Some people opt to create a self-invested personal pension (SIPP), which lets them choose where their pension money is invested. This is beneficial to those who want flexibility and control over their pension savings and investment choices, it also gives more options as to what they do with their money, alive and dead.
The most common pension now is the defined contribution, your funds are invested and can usually be transferred to a personal pension. This allows you to keep track of your pensions in one place as you move from job to job, it also means administration and management of your savings is easier.
I had two pension pots accrued from previous employers. I opened a personal pension a couple of years ago and consolidated them. I currently contribute into my personal pension and also a workplace pension. If I was to move on in the future I would transfer the value of my NEST pension into the personal pension so everything is in a single place ready for accessing when I decide to retire.
If you're at an age where you can access your pension savings, 55 and upwards, and still pay into an active defined contribution pension plan, it is worth noting that if you withdraw from it, over and above the tax free allowance, the amount you could contribute in the future and claim tax relief may be limited.
Charges are an important factor to consider as they will inevitably have an effect on your savings. Management charges for workplace pension plans can vary, on average around 1%, if you have four pension pots you could be paying charges on each one. I would suggest checking your policies and seek advice from a trusted financial adviser if you are unsure what the fees represent.
Whatever the situation with your pensions, the first thing to do if you're thinking about consolidation is to speak to a financial adviser. We can help you figure out the best solution for your individual needs.
THE VALUE OF INVESTMENTS AND ANY INCOME FROM THEM CAN FALL AS WELL AS RISE AND YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.