Consolidating pensions can cut costs for savers

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Would you like to reduce the pension charges you pay? If the answer is yes, then it’s time to consider consolidating the different pensions you have.

Consolidating multiple pensions into a single scheme could reduce the charges you pay and make it easier for you to manage your savings for retirement.

And we know that consolidating multiple pensions is an option for a lot of pension savers because our research tells us that 80% of our own customers have more than one pension. 

Consolidate to reduce pension charges 

By consolidating your pension savings into a single plan you could create savings by moving money to the lowest cost pension. And the less you pay in charges, the more money stays in your pension pot. Over the course of a lifetime the difference this makes can be astonishing.

Say, for example, you’re 45 years old and you’ve got £100,000 in a workplace pension. Let’s imagine you change jobs, stop paying into this scheme and your total annual fund charges are 1.75%. On this basis you pay £1,750 a year.

If you could reduce that charge to 1.25% you’d pay £1,250. That’s £500 a year more staying in your pension, adding up to £10,000 over 20 years and that’s before taking into account the impact of any potential growth on your investments. 

Consolidate to potentially increase the size of your pension pot 

In addition to minimising your charges by consolidating multiple pensions into one with the lowest charging structure, pulling your pension savings together could also reduce your charges by increasing the amount of savings you have in the one place.

For example, customers using our Retiready platform are charged different rates depending on the size of their pension pot. These are 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

So if you had three pensions with £45,000 in each of them, you could make savings by bringing them together and enjoying a lower single charge on the combined total. In this example your consolidated pension pot would total £135,000 and be charged at 0.3%, instead of the 0.5% charged on pots of less than £50,000.

Consolidate for convenience and to improve performance 

Once you consolidate your pension savings it’ll make them much easier to manage. You’ll know exactly how much you’ve got, where it’s invested and how it’s performing.

This single view will make it easier to invest your pension savings in line with your risk appetite and will also make it easier to move them where performance is poor or you change your investment strategy.

Where you’ve got three or four different pension plans it can be difficult to monitor them this closely. And if you want to change the mix of investments you’ve got, you’ll have to do it across all of your pensions, meaning there’ll be more buying and selling to do. The more trades you make the more likely it is to cost you more in transaction fees - another reason why having fewer pension plans could save you money. 

When you’re saving for retirement every penny counts so if you’ve got more than one pension, consolidating them could make a big difference to your finances in later life.

You should also be aware that bringing your pension pots together isn’t only about reducing charges. While it’s a possibility that it could do so, there could be other valuable features to consider when transferring your pensions. If you are unsure about any of the benefits consolidating could bring, speak to a financial adviser.