Most people change their careers and move across different employers in their lifetime, and this means that when it comes to retirement, they can end up with a number of different pension pots with all different providers. Different schemes will have different roles and it can be hard to know whether or not consolidating your plans into one is the best option for you. Here are some of the potential benefits and potential downsides should you decide to transfer your pension.
Possible pros of consolidating your pensions
Less paperwork – one of the main advantages of consolidation is all the administrative benefits that come with it. With multiple pension plans, you will receive lots of statements and paperwork all outlining a different scheme but when they are all collected into one then you have a lot less to keep track of. Especially if you go with a pension that you can manage online.
Easier to monitor your investment performance – when all your pensions are consolidated into one, it makes it much easier to monitor your investment performance. Pension providers will usually report past performance in different ways and sometimes their reports are made at different times, for example, one may come at the beginning of the year whereas another may come in the middle and another at the end of the year! One pot means one report on all your pension investments.
Increased investment diversity – you may think that transferring your pension into one plan will reduce your investment diversity, but this is not necessarily true. Often when you look at your pensions you may find that they are not diversified at all because you have just stayed in the “default” funds offered by each provider – which are often very similar. If you find a new provider with a good selection of funds, then you can open yourself up to a whole range of different investments.
Possible cons of consolidating your pensions
Exit fees versus ongoing pension charges – the cost of transferring varies between providers and whenever you move pensions there are a number of considerations to be made. One such thing is the exit costs versus the cost of the new pension. Exit fees are capped if you are close to retirement so you will often find that the exit costs will go down with time. To figure out if it is worth it then you need to compare five years’ worth of charges on the new plan against the exit charges from all the plans you are looking to consolidate. If you’re not planning on touching your pension for 10 years or more, then some penalties will become cost-effective in the long term because you will be saving more over time. You might want to consider getting the right pension advice on how to go about this, and if you’ve had the wrong advice, get compensated as soon as possible.
Loss of existing benefits for all pension types – it is vital that you look out for the loss of existing pension benefits when consolidating. Some older pensions might allow for a higher amount of tax-free cash, or they could have a guaranteed annuity rate that might be higher than the rates offered from one bought on the open market.
