Consolidate to accumulate when it comes to your pension

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How often do you think a squirrel finds every stash of nuts it’s buried over the winter? Come the spring there must be lots of little food parcels left buried in the ground. People who take the same approach to their pensions also risk misplacing money by the time they reach retirement. 

More pensions in modern times

We know from our own research that 80% of our customers have more than one pension. We also believe that the evolving labour market and the recent auto-enrolment legislation make it more likely that people will become members of multiple schemes over their working lives.

In today’s world we tend to move more freely from one job to another and auto-enrolment demands that every employer opts those who are eligible into a pension scheme. Over the course of a career the number of pensions can quickly mount up and so it becomes very difficult to manage them all effectively. Then there are any personal pensions that you might have set up to think about. 

What assets and investments are held in each of your pension pots? Without an accurate picture of where your money is invested, then it’s impossible to create an effective financial strategy that suits your risk appetite as you try to hit your targets for later life. 

If you’ve consolidated multiple pension pots into one, it’s much easier to ensure all of your investments are aligned to your chosen strategy. You can see exactly how much you’ve saved, where it’s invested and how well it’s performing, before making any changes necessary.

Cutting cost through consolidation

By the same token, consolidating multiple pension pots into one makes it much simpler to keep a handle on charges and could reduce the amount you’re paying. Do you know what charges are levied on your pension savings? Do you know how the charges applied by one provider stack up against those of another? 

If you don’t then you might be paying more than you need to and this can run to thousands of pounds over a lifetime, as publicised by the government. 

Before introducing the charge cap for workplace pensions the Department for Work and Pensions said an average earner on track to accumulate a pension pot of around £30,000 could benefit by as much as £1,600 from saving into a scheme charging 0.75% rather than charging 1.5%. For many it said the financial uplift could run into tens of thousands of pounds. new window).

It’s also the case that if you consolidate multiple pension pots then you could benefit from reduced administration charges. However, it’s worth noting that benefits aren’t guaranteed and you may get back less than you invest. For customers using Retiready - new window) - our direct-to-customer digital pension platform, we taper our administration charges down as follows:

  • 0.5% a year of your first £50,000
  • 0.4% a year of your next £50,000
  • 0.3% a year for anything above £100,000

Where you can consolidate a number of smaller pension pots into a larger one, this could move you into a lower charging bracket and so reduce the amount you’re paying. But before you do, check that transferring out of existing pension pots is the right move and that you’re not giving up valuable guarantees or protections. 

There’s then an investment charge on Retiready, which will vary depending on the fund you choose, and you’ll have to compare this with what you’re already paying to make sure any move works in your favour. 

Simplify your legacy

Pulling all of your pensions into a single place is also an important consideration for those you leave behind on death. At this awful time it’s difficult enough to sort out financial affairs and make sure that everything has been properly accounted for. But the task becomes more complicated and protracted when there’s a litany of pensions to uncover and organise. 

Squirreling money away for later life is a must, but creating a smorgasbord of pension pots makes managing them more difficult, often comes at extra cost and complicates the task of creating an effective financial strategy. 

Mark Till

Managing Director, Direct