Over the course of your working life, you may have contributed to a number of pension schemes. You may even have lost track of some of your old pensions. Have you considered consolidating your old pensions into one single easy-to-manage scheme?
Building up a number of pensions over time
By the mid-stage of your career, you are likely to have worked for several businesses, contributing to a number of employers’ pension schemes. If you’ve worked for yourself – as a freelancer, or contractor – you may also have a personal pension plan. By the time you’ve reached 40 or 50, it would not be unusual to have 3 or more separate pensions.
As you think about planning for your future – what will you do when you retire – pensions are a fundamental part of most people’s long-term saving plans.
Having a number of separate pensions may not necessarily be the most efficient way to invest for the future. It may be hard to track the performance of multiple schemes, deal with disjointed paperwork, and keep a track of your contributions. You may even have lost track of old pensions from a past time.
So, how might you benefit from consolidating your old pensions? And what are the downsides, and things to look out for?
What are the benefits of pension consolidation?
- Lower fees – each fund has a management fee, of say 0.5% or 1%. Given the power of compound interest over many years, a reduction in fees could result in tens of thousands in savings over the course of your business life.
- Convenience – for obvious reasons, it’s much easier keeping track of a single pension plan, than multiple ones.
- Pension growth – if you have several plans, some will perform better than others. If the consolidated plan outperforms the combined performance of the individual plans, your pension pot will grow faster.
- Closure – if an old pension scheme is due to shut down, for whatever reason, you will be forced to transfer the plan.
Clearly, these are powerful reasons for considering a pension merger. However, not all pensions are the same. There are reasons to be cautious when dealing with your pensions.
Why you should exercise caution
- Seek professional advice – your pensions are likely to be your most important long-term asset. Making small changes now may result in significant changes to the value of your pension over time. For this reason, we strongly suggest you seek professional advice before moving or changing your pension arrangements.
- Final salary schemes – if you have a defined benefit pension – this may come with guaranteed income guarantees over the course of your retirement. If you switch this type of scheme into a defined contribution pot, you will receive a lump sum with a ‘cash equivalent transfer value’. You should seek advice before moving out of a final salary scheme. In fact, if the transfer value is £30,000 or more, you are obliged to seek financial advice.
- Penalties – you may be charged a fee for moving your pension. Depending on the size of the penalty, this may affect your decision to transfer. Some older schemes may charge over 5% of your pot to transfer out, although penalties of this size are increasingly rare.
Collect information about your old pensions
Firstly, you should collect details of all your old pension schemes. You can do this by contacting the pension provider (if you know who this is), your former employer, or use the Government-run Pension Tracing Service.
You should request as much information as you can about each pension, including the value of the pot, your contributions to date, ongoing charges, how your money is currently invested, any additional benefits provided by the scheme, and any penalties that apply for exiting.
Now you’re in possession of all the facts, you will be able to accurately weigh up the pros and cons of transferring any old pensions, or consolidating.
Again, give the importance of pension planning, we do suggest you discuss your options with a professional adviser.
How to combine your pensions
Everyone’s situation is different. You may decide that you’d rather leave things as they are. You may decide to consolidate all of your pensions into one easy-to-manage scheme. It may be more prudent to combine two pensions and leave one untouched.
One of the market-leaders is PensionBee. Over 300,000 people have already combined their old pensions into a single scheme using this service.
How does PensionBee work?
- You can access the simple sign-up process page here. All you will need initially are some basic details, including your NI number.
- Choose from a wide variety of pension plans, according to your needs.
- Tell PensionBee about any existing pensions you would like to transfer.
- PensionBee will contact all of your existing pension providers on your behalf.
- You will receive updates along the way, and as soon as your pension has been transferred. Any problems along the way, or additional information required? You will be notified right away.
- You can start contributing to your new PensionBee pension – direct from your own limited company, or via personal contributions. Find out more about contributions and tax relief here.
- Track your pension, set up contributions, and view the performance of your pension at any time via your laptop, or the PensionBee app.
How long will my pension transfer take?
Unsurprisingly, the speed of any pension transfer depends on a number of factors – particularly how ‘modern’ the pension scheme provider is. Some providers still insist on doing everything on paper, rather than carrying out the transfer electronically.
You may find that an old provider will try to drag their heels and encourage you to reconsider leaving the scheme – resulting in delays. Others may complete the transfer entirely electronically, without any delays, in as little as two weeks.
You may need to be proactive if your provider is slow, or seems reluctant to carry out your wishes in a speedy manner. But don’t forget, it’s your money, and your choice to transfer your pension.
You should seek professional advice before relying on any information contained within this article.