Multiple Pension Pots

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Neil Jenkins talks about combining multiple pension pots

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Why Worry If I Have Multiple Pension Pots?

Over the course of your career you’ll probably work for many different employers. Every time you start a new job, you’ll be enrolled in the company’s workplace pension scheme. Then, when you move on, you’ll leave this pension behind. You may also spend time in and out of self-employment and build up pension savings in a self-employed pension scheme. This leads to a build up of multiple pension pots which are hard for you to monitor.

It’s a good idea to keep an eye on how much you have in all your pension pots. Make sure your selected retirement age for each scheme is the same as the age you intend to retire as this may have an impact on how your money will be invested. It’s important to keep an eye on your investment strategy for each pension pot, and you should avoid a ‘lifestyling’ strategy if you don’t plan to retire and buy an annuity within the next 3 to 5 years.

At some point you’ll need to decide whether it’s better for you to shoulder the administrative burden of lots of small pension pots or to consolidate them into one pension. What you do depends on what type of pensions you have, how much they’re worth, how well they’re being managed and whether they have any special guarantees attached.

Can I Save Money If I Combine My Pensions?

Every pension you have will be managed separately. Each will have its own fees. Some of these fees may be higher than others. Combining your pots into one pension with one management fee can save you money. Remember, a small saving made early enough can save you thousands of pounds in the long run.

Will My Savings Do Better If I Combined Pension Pots?

This freedom of choice enables you to use a multi-manager risk targeted investment strategy which will give you and your adviser much more control over your pension pot. It’s inevitable that your investment objectives will change as you move through your working life. More control over your pension pots’ investments will make it easier for you and your adviser to adapt your strategy.

Will Combining My Pension Pots Make It Easier To Monitor My Pensions?

It’s easier to monitor one pension pot than multiple pension pots. Managing a pension pot involves more than just checking how much it’s worth once a year. You need to regularly check that you’re still invested with the right strategy to meet your objectives. Remember, this will change over time, especially as you get close to the day you plan to retire.

Your attitude to risk might change as you get older so you should regularly review your investment strategy to make sure it’s not either too adventurous or too cautious for you. It’s prudent to take professional advice before you draw money out of a pension pot. This makes it impractical to draw a pension from multiple pension pots as you’d require advice for every pot rather than just one. All of this means that people usually bring multiple pension pots together under one plan.

Will Combining My Pension Pots Make It Easier For Me To Keep Track Of My Pensions?

There’s a real risk that you might lose track of a pension pot if you have multiple pension pots with different providers. For example, when you move home you must tell all your pension providers about your new address. You don’t hear from your pension providers very often, and if you’re not careful with your paperwork it’s easy to miss one. We find this to be the main reason that clients forget about a pension. When all your pension pots are under one roof this risk is almost completely eliminated.

Can I Consolidate My Defined Benefit Pensions?

If you’re a member of a defined benefit (or final salary) pension, your scheme might offer you an option to transfer out. If you transfer a final salary pension you’ll give up a pension which is guaranteed for life. This is a big decision and, if your transfer value is higher than £30,000, you’re legally required to seek independent advice before you transfer. You must think very carefully before you decide to do this as your decision can’t be reversed.

How Do I Decide Whether To Combine My Multiple Pension Pots?

We’ll liaise with your pension providers to build up a clear picture of your current pension plans. We’ll then make a recommendation, based on your current circumstances, needs and objectives, about whether consolidation is right for you. There’s no universal right or wrong answer when it comes to transferring pensions. You should always take professional advice.

Are There Any Reasons Not To Combine My Multiple Pension Pots?

Consolidating your pensions before retirement is usually a wise move. However, there are some circumstances in which it isn’t the best option. Reasons not to consolidate your pensions might include: –

  • A guaranteed annuity rate (GAR) which gives you the legal right to buy an annuity with a much higher annual income than would be offered today. It might not be clear from your pension paperwork whether you have a GAR, but we can check this for you.
  • There may be penalties to transfer your pension. This means the transfer value could be less than the current value of your pension pot.
  • Your pension might have other guarantees which will have a big impact on the final value of your pension pot when you retire e.g. traditional with profits bonuses, loyalty bonuses.

Ask us for a free consultation to find out more about your pension pots before you decide to transfer. 

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