Pensions, pensions everywhere: creating a savings strategy based on multiple pension pots

Many of us have more than one pension plan so what are the options to consider when planning for retirement?

The average British worker will have six jobs in their lifetime, with this figure rising to 12 for millennials. That can make things complicated when planning your retirement because of the many pension pots you may accumulate. 

Nearly two-thirds of us already have multiple pension plans, a trend likely to intensify given that most employees are auto-enrolled into a new plan when they start a new job. 

It can be hard to create a coherent retirement savings strategy based on multiple small pension pots, and you may be paying more than you need to in fees. 

Pension consolidation? 

One solution is to consolidate your pension pots into a single plan with one provider. Two consolidation options are to choose one of your pots, perhaps the most valuable, and put all the others in it, or to combine some or all into a self-invested personal pension (SIPP). SIPPs are popular as they let you make your own decisions about how your money is invested, offering a broader choice of investment vehicles than a standard pension. But they are not for everyone.

With a SIPP, the burden of risk falls on the investor or their investment manager, while those content with a smaller range of investment options often find that combining pots into one personal pension plan is easier and may be cheaper. 

Whatever option you choose, consolidation has the advantage of putting all your pensions into one place, often with lower fees. 

However, before taking the plunge, do check what exit fees are levied for leaving your current provider, and whether they outweigh the benefit of any lower fees. If you are over 55, exit fees should be capped at 1%, so it may pay to wait. 

Transferring some types of pensions could endanger key bonus features; guaranteed annuity rates and enhanced tax-free cash sums could be lost when transferring a money purchase scheme; and the transfer of final-salary schemes, which means sacrificing benefits such as guaranteed income for life and spouses’ pensions, is unlikely to be in your best interests. 

Is a transfer worth the hassle? 

You might assume that consolidating your pensions is not worth the time it will take. But once done, it is far easier to manage your pensions in one place, and the impact of lower fees on your investment returns can be significant. 

Transferring can be complex so it is always best to speak to an adviser who can make sure if this is suitable for your individual circumstances and help you consider a wider range of assets you may use in retirement. 

For most of us, our pension is our second-biggest asset after our homes, and it is important to make the most of it. Keeping down fees and ensuring our money is invested as wisely as possible can help ensure a more comfortable retirement

This article was originally published on The Telegraph website on 22 February 2019.

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