When is the best time to consolidate your pensions?

When is the best time to consolidate your pensions

How many pension pots do you have?

In your working life, as you move between jobs, you’re likely to build up a number of different workplace pensions. In addition, you might also have a personal pension. Now’s a good time to make a list of how many you’ve got and where they all are. Did you know you’re probably paying separate charges on all of them?

It might be time to think about bringing them altogether into one pension pot – also known as consolidation. Consolidation can be a good thing as it can help you save money on multiple charges, can give you a clear view of all of your retirement savings and make things easier to manage.

If your paperwork isn’t as organised as it could be, don’t worry. By contacting the pension tracing service, you will be able to track down any missing workplace pensions that you have. The Pensions Advisory Service will be able to help you if you find personal pension details that you might have misplaced.

Once you’ve found all of your pensions, it’s time to see what consolidating your multiple pensions into one pot could do for you. You might be able to reduce charges and improve performance. However, it is important that you review your current pension terms carefully as you may have important benefits or features such as guaranteed annuity rates or bonuses that you could lose when you transfer. Remember, the value of your savings can fluctuate and you may not receive the same amount back that you originally put in. If you are unsure, you can discuss your options with our team of experts or you can speak to a financial adviser.

The early bird catches the worm

The longer you leave your pension savings in a scheme with high charges, the more that these charges could eat into your money. If you aren’t monitoring your investment, you could be leaving your pension savings invested in a poorly performing fund, reducing the opportunity for growth. High charges and poor performance are a toxic mix – in fact, figures from consumer Watchdog Which? illustrate just how much they can impact on the growth of your pension nest egg.

If a 35-year-old with £10,000 in their pension pot stayed invested until they the age of 65, achieved 5% annual investment growth and paid annual charges of 2%, they’d end up with £23,720 in their pot.

However, according to Which?, if the fund achieved annual investment growth of 7% and had a reduced annual charge of 1.5% then there’d be £48,541 in the pot come the age of 65. That’s more than double, and demonstrates why it’s so important to keep charges low and to monitor investment performance carefully. 

Consolidating as you get older

The closer you get to retirement, the less time you’ll have to benefit from reduced charges and improved performance. There’ll also be less time to recoup any exit fees you incur from transferring out of existing pensions.

That doesn’t mean for a minute that you should forget about consolidation, and it’s always worth examining exactly how much consolidation would cost, the savings you could generate and the performance of your existing funds. If you’re paying high charges and getting poor investment returns you could potentially make up any outlay for consolidating very quickly.

Keeping track of your savings and managing your retirement fund are key. No matter how close you are to retirement, it’s important that you have complete clarity on how much you have and where it’s invested. As you begin to explore how you could use your pension savings to generate an income in retirement, a single value view is a lot easier to manage.

If you are at all unsure about what you need to do, or would like advice based specifically on your circumstances, it is key that you get professional help from a financial adviser. If you’d like guidance on how to consolidate your pension, we can provide this through our Aegon Assist service, however, we do not provide advice.