Pension Consolidation
Pension Consolidation
Do you have several pensions? Might be worth considering consolidation?
Having a collection of current and old pensions with no clear unified investment strategy can seriously reduce your income in retirement.
It’s not uncommon now for people to have several pensions that have been built up with various employers over the years. This usually leads to the investment management of the funds being neglected and left with funds that may have been picked years ago. They may not be right for your current circumstances.
A popular way to get some control over your pension again is to consolidate them into a new pension where they can be managed under one strategy.
Consolidating old pensions into one new pension can also provide access to a higher level of investment management for the funds, with the aim of achieving a better rate of return in the future.
Things to consider
Fees
Quite often, workplace pensions have a very low annual cost. Therefore it is important to consider the current costs versus the new costs if moved to a new consolidated pension. This doesn’t mean that the new pension has to be cheaper, it may be that the added flexibility of the new pension will warrant a slightly higher annual charge. However this needs to be carefully assessed before deciding if consolidation is right for you.
Investment flexibility
Your current pension may limit the investment choice you have. It’s not uncommon that a handful of funds are available and that’s it. Consolidating your old pensions in something more flexible would give you a much wider spread of investments to achieve more diversity to the pension.
Partial Transfers
If one of your pensions is still active and receiving contributions from your employer, it might not be possible to transfer the full value of the fund to a consolidated scheme. This is because your employer won’t make these annual contributions to the new pension.
If this is the case, you may be able to request a ‘partial transfer’. This will allow most of the balance of the workplace pension to be transferred to the new pension, but leave enough behind to keep the scheme active and allow your employer to make contributions. As the balance builds up in the workplace scheme, you can request a partial transfer once per year so that the bulk of the pension remains within your new consolidated plan.
Giving up benefits
In some cases your old pension may have some additional benefits such as death in service or favourable withdrawal rights in the future. It is therefore important to research this in detail prior to deciding if consolidation is right for you.
Summary
Pension consolidation can be a great way to create one, larger-value pension that can be professionally managed with your long-term goals in mind. However, careful checks need to be made as you may be giving up hidden benefits you didn’t know existed.
