Working life has changed and the old expectation of a ‘job for life’ doesn’t really exist anymore. In fact, it is estimated that the average worker nowadays will have 11 jobs over their career.
This shift has meant that it is much more common for people to have multiple pensions scattered among different pension providers. Keeping track of all these pensions can be tricky, especially if you move house a lot and forget to give your pension provider your new address.
We often get asked whether it’s a good idea to consolidate pensions into one. The answer is: it depends. There are pitfalls as well as benefits, and in this article we will set out both.
Benefits:
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Easier to keep tabs on
Having one pension plan gives a clearer picture of your total pension funds and how you are saving for retirement. From an administrative point of view, consolidating makes a lot of sense because you will only have to deal with one pension provider and one annual pension statement. Most people welcome having less stacks of paper to wade through and only one pension provider to contact.
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Lower charges
The basic States pension is very modest so it’s important that money in personal and workplace pensions works hard. Older style personal pensions tend to have higher charges, and having multiple pots creates the risk of duplicated administration costs and your pensions funds are not working as hard as they could for you. If your pensions are defined contribution, then transferring them into one pot is often the best option because you should get lower charges.
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Investment performance
Better returns are never guaranteed, but greater investment choice and lower investment fees will certainly stack the balance in your favour. Investment return net of fees will directly affect the amount of your retirement income so it is important to compare this between the different pensions which you may have.
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Flexible access
Older pension plans are unlikely to include a digital offering, such as an app or online access to a member website where you can keep track of it all on the go. When you reach retirement age, modern pensions include a choice or either drawdown on your pension account over your projected lifetime (and your pension account does not die with you and can be passed onto your beneficiaries) or an annuity.
Potential pitfalls:
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Special features
Defined benefit schemes with a guaranteed income for life and some also provide inflation protection that keeps up with the cost of living are rarely offered to new employees these days, especially not in the private sector. Therefore, if you have a defined benefit scheme, it’s unlikely to make financial sense to move it.
In fact, in Guernsey there is a rule that if you have a defined benefit pension with a greater value than £50,000, you need to have a Transfer Value Analysis report produced before you can transfer it. Other valuable features of a pension might include a guaranteed investment return, a guaranteed annuity rate, tax-free cash sums, and the choice of taking the pension at a younger age.
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Exit fees
If there are exit fees, they will usually be an fixed amount which is deducted from your pension account..
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Moving to different countries
Different countries operate different pension systems. If you are only going to be in a certain country for a short period of time say due to a work secondment, it might be best to wait to combine your pensions until are settled in a particular country for the long term.
In conclusion, many financial experts will tell you that it makes sense to amalgamate your pensions into one pot because you can keep tabs on your savings more easily. In many cases, one big pot is better than lots of smaller ones.
But before you rush out to transfer your pensions, there are important questions that need to be asked. Always be cautious about losing guaranteed benefits especially from a defined benefit scheme, which might be difficult to spot in the paperwork.
It is a good idea to seek professional guidance. If you do opt to consolidate, then your new pension provider will help you complete the various forms and transfer the money on your behalf. If you want to find out more about combining your pensions together, you can speak to our experienced and trusted team on 728432 or email pensions@bwcigroup.com.
Trustee and Administration services are provided through BWCI Pension Trustees Limited, which is regulated and licensed by the Guernsey Financial Services Commission under The Regulation of Fiduciaries, Administration Businesses and Company Directors, etc. (Bailiwick of Guernsey) Law, 2020.