Throughout your career, it’s likely that you’ll end up working for more than one employer. As a result, you may have been enrolled in more than one pension scheme, giving you multiple, distinct pots containing your retirement savings.
It’s also possible that you have a private pension or a self-invested personal pension (SIPP) that you’ve chosen to save into alongside your workplace scheme.
With all these pots generating returns for your future, it may leave you wondering: should you consolidate your pensions into one single fund?
Indeed, according to research published by MoneyAge, more than half of pre-retirement savers with two or more pensions would choose to consolidate their pots.
As with any financial decision like this, there are various benefits and drawbacks of making this choice. So, make sure you read these pros and cons of consolidating your pension pots before you act.
3 pros of consolidating pensions
1. All your savings in one place
One advantage of consolidating your pensions is that a single pot of retirement savings can be convenient and easier to administer.
Rather than having to keep an eye on multiple statements, you can see exactly how much you’re saving for retirement in one straightforward location.
Additionally, having multiple schemes makes it more likely that you’ll lose track of one of your pots entirely.
Meanwhile, by consolidating, you can be confident that you won’t forget about any schemes you have, meaning you won’t lose any of your savings as a result.
2. Potentially lower fees or charges
As well as being easier to keep an eye on, having fewer pots to manage can mean you end up paying less in management fees.
Most pension schemes will have fees or charges in return for saving and investing your money. So, by consolidating, you can reduce the amount you have to pay to pension providers.
This could mean that you keep and ultimately use more of your retirement savings, rather than paying them out to multiple providers.
3. Prioritise certain investments
As each pension scheme or provider will typically select different investments to one another, you’ll likely see differing levels of performance and returns across your pots.
So, you could choose to consolidate your pensions under the scheme that you think has the most suitable and appropriate investments for you.
Of course, bear in mind that just because one scheme has provided returns in the past, it doesn’t mean it will continue to do so. Past performance is not a reliable indicator of future performance.
3 cons of consolidating pensions
1. Multiple pots can offer greater diversification
The other side of the coin to choosing a scheme for the returns it produces is that holding multiple pensions can offer a level of diversification.
If you consolidate your pensions, a dip in the value of the underlying investments would affect all your retirement savings.
By contrast, holding funds with different providers could see one pot retain its value, even if another falls because of market activity.
As a result, keeping hold of different pensions can offer greater diversification in investments.
2. Lose benefits that come with certain pensions
One reason that it may make sense to keep your pensions separate is that a scheme you have may come with valuable benefits that you don’t want to lose.
Benefits that some pension schemes may offer could include:
- Early access to funds
- Guaranteed annuity rates
- The ability to withdraw more than the standard 25% tax-free lump sum.
Check that you don’t have these benefits before you move your funds as they could be worth keeping, even if it means holding separate pots.
3. Potential exit penalties to pay
While most pension transfers are free from fees or charges, some providers and schemes may charge exit penalties if you want to move elsewhere.
As these penalties will apply directly to your retirement funds, it may make more financial sense to leave your money where it is.
Your circumstances will decide whether it’s right for you
All in all, the decision to consolidate your pensions will come down to your personal preferences and circumstances.
Would you like to have all your savings in one convenient pot that you can see and manage easily? Or would you rather keep them separate in order to keep valuable benefits that come with a specific scheme?
There’s no right or wrong answer here, it’s simply a case of working out which one is the right choice for you.
Whatever you ultimately decide, it’s important to take care. Your pension is likely going to play a big part in funding your retirement lifestyle, so if you’re unsure whether it’s the correct course of action, make sure you seek financial advice.
Speak to a financial planner
At LightSide Financial Planning, we can take a comprehensive look at your pensions and show you the pros and cons of consolidating based on your personal circumstances.
As financial planners, we’ll help you make an informed decision with your pension pots that ensures you’ll achieve your retirement goals.
Email firstname.lastname@example.org or call 0151 372 0161 to find out more.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.