Pension consolidation could create less hassle and better outcomes for you

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Financial jargon is a pain and often it puts people off taking control of their pension savings and making decisions that’ll improve the way they manage their money.

One bit of jargon that gets used continually when it comes to pensions, is consolidation. But what does it mean and how could it benefit you?

Pension consolidation simply means reducing the number of pensions that you have, and transferring the money from lots of different pots into a single pension pot. It really is as straightforward as that.

There are lots of reasons why this is a good idea. It could save you money. It’ll make it easier to manage your pension savings. It’ll improve your ability to monitor the performance of your investment. It’ll let you plan more effectively for the future. It could even stop you forgetting about any of your older pensions. Having one consolidated pot could let you build up a bigger pension pot for later life, and make it easier to arrange taking benefits from your pension savings in later life.

That’s quite a list. We know consolidation is something that could benefit lots of people, because over 80% of our own pension savers have more than one pension. (Source: Aegon customer research, 2016) If you’re in the same boat, then you could really make a positive impact on your pension plans by thinking about consolidation. Of course, as with any financial product, there are risks involved. If you’re unsure as to what is involved, or whether or not consolidation is the right decision for you, it’s important that you seek advice from a financial adviser.

Consolidation could save you money

If you’ve got lots of different pensions, it can be difficult keep track of the individual charges for each pot. It’s unlikely you’re paying the same charge in all of them and some will have higher charges than others.

By consolidating lots of different pensions into a single pension with low charges, you might be able to save money.

Better management through consolidation

When all of your pension savings are in a single pot, it’s a lot easier to see exactly what you’ve got. You won’t have to log in to different online accounts or phone up multiple providers to get a value for each of your pension schemes.

Making it easy to keep an eye on how your pension savings are performing, makes it easier to see if your pension is growing in value, or if you should switch investments to seek out better returns or alter the level of risk.

Plan more effectively by consolidating

Pension planning is all about making sure you have enough money to afford the lifestyle you’d like in retirement. Once you work out what annual income you think you’ll need, you can then calculate how much you’ll need in your retirement pot to generate that retirement income. We have a Lifestyle planner tool that could help you figure this out, just add in simple things like your food shopping bill, regular outgoings, the amount you spend on petrol…et voila!

Once you’ve got this target figure, it’s a lot easier to make plans, and if all of your pension savings are in one place, you can see their value at a glance. Whether planning alone or with a financial adviser, having a single view of your savings gives you a clear idea of what you’ve got, and creates the best foundations for putting in place plans that’ll take you to where you want to get to. 

If you can secure lower charges through consolidation and better returns from careful investment monitoring, you could end up with a bigger pension pot.

Keep track of your pension pots

One of the biggest problems with having lots of different pension pots is that it’s easy to forget about some of them. You’ve probably had more than one employer in your career and if you’ve joined the workplace pension scheme at each of them, they soon add up. You might have started your own personal pension too, and so that’s another one to think about.

Auto-enrolment legislation demands that employers automatically enrol eligible employees into a compliant workplace pension. As a result of the legislation, more than 6 million people have begun saving into workplace pension since 2012. This’ll add to the number of pensions people build up over a lifetime.

Instead of keeping your savings in an old employer’s workplace pension when you move jobs, transferring the money into the scheme offered by your new employer will keep everything together. If you don’t, some of your pension savings could easily get forgotten about. The Department for Work and Pensions say there could be as many as 50 million dormant and lost pension pots by 2050, adding up to billions of unclaimed pounds.

It’s easier than you think to lose track of an old pension, but consolidation will make sure it’s not your money that goes missing.