Over the course of our working lives, many of us have worked different jobs. This can mean we’ve paid into several different pension pots over the years. Keeping track of where our money is and all of the associated paperwork can be difficult. At Prestige, we’ve created the handy guide below to help show you how consolidating your pension pots could be the right move for you.
The positive effects of consolidating
- Convenience: Above all, combing your pension pots makes keeping an eye on your pension easier. Not only will this mean that it is simpler to manage as it is all kept in one place, you may also have access to a wider range of investors. It can help you gain a better investment performance.
- Save on fees: If you look around when deciding which scheme to consolidate your money into, you may find that you’ll be able to reduce the charges you pay on your pension. Some older schemes carry much higher fees than new ones, so it may be best to move older pots into a newer scheme.
- Greater range of investment: This is especially seen if you transfer your pension savings into a self-invested personal pension (SIPP). With this, you’ll be able to invest your money into a wide range of investments, from shares to investment trusts. The main benefit of this is that you won’t be restricted to pension funds offered by any single pension provider.
Although combining your pensions makes life simpler, make sure you’re aware of any risks of doing this beforehand. You could lose out on loyalty bonuses and face exit penalties. Looking into the risks, or contacting a financial adviser for help before you act, could prevent big losses.
Factors to consider about consolidating your pensions
Whether you should consolidate your pensions depends on your individual situation. This comes down to how many pension pots you have, how much they’re worth, the terms of these schemes, and how far you are from retirement age. If you are considering buying annuity, consolidating your money could give you a better deal and a bigger monthly amount.
Before switching your pension, bear in mind any advantages that you may be giving up. If the scheme is offering a guaranteed annuity rate, it may be worth sticking with it. These guarantees tend to give higher payouts as many of them were set with interest rates as high as 11%.
In addition, some policies give life insurance, which you might lose if you switch. Make time to look into the benefits of each system and what you stand to lose by consolidating.
Making the best of what you have
Any money that you have saved should be working as hard as possible to get the best returns for you. Moving into a pension that offers a higher growth could mean that you’re retiring with more money. For example, if you have an old scheme worth £30,000 at age 40 that is earning 4% interest a year, you’ll see your fund grow to £79,975 by the time you’re 65. Alternatively, a scheme with a 7% interest rate would see your figure rise to £162,823. It pays to understand where your putting your money and put as large an amount as you can to gain the biggest return on investment.
Choosing the right pension scheme for you
When deciding which pension scheme is best for you to consolidate your money into, shopping around is essential. Looking at any schemes you’re currently invested in helps you understand where your money is going. Making a note of annual management charges and initial charges on money that you transfer in will give you a good idea of the benefits of each scheme.
Don’t feel trapped by any of your current pension schemes. If you feel like the investment performance is not good enough and you can do better, you can move all your money into a brand-new scheme that is better suited to your needs.
Before moving your pension or opening a new scheme, it’s worthwhile to talk to a professional financial adviser to get advice tailored to you.