Craig Skelton, principal of the CS Financial Group talks about pensions and whether you need to simplify and consolidate.
Why do we need to think about consolidating our pensions?
Employee pensions can accumulate as we change jobs, and it’s easy to lose track of how much each one contains. When you leave a job, it’s easy to forget about the workplace pension you might have had there. The average person has several jobs during their lives, and with the 2012 introduction of auto enrollment for employer pensions, it’s not surprising that many of us have more than one pension to our name.
Whatever the situation with your workplace pensions, the first thing to do if you’re thinking about consolidation is to speak to a Financial Adviser. We can help you figure out the best solution for your individual needs.
How do I track down all my pensions?
All pension providers are obliged to send members of the scheme an annual statement to keep them up to date on how much their pension contains. But the Association of British Insurers (ABI) estimates that 1.6 million pension pots worth billions of pounds are forgotten about, simply due to people just moving home and no longer receiving those statements.
So it’s vital to write to your old pension providers to let them know if your address changes. The government is in the process of launching a dashboard where all pension providers will be able to import member details, giving customers the ability to see their pensions in one place. But this process will take some years, as it relies on all providers supplying their data.
How can I tell whether I should consolidate my pensions?
The first step should be to check the small print. If you have an older pension that’s around 20 years old or more, you could lose some of its benefits if you transfer. There may also be steep exit fees as well, which will be taken out of your pension amount.
Unlike older pension schemes, the newer ‘defined contribution’ pensions are less likely to be affected by exit penalties. If you want to transfer them into one place, the funds are invested, which makes consolidation an attractive option. It’s worth noting that if you’re still paying into a defined contribution scheme and want to withdraw from it, the amount you can pay in while claiming tax relief could reduce. On average, management fees for workplace pensions are around 1%. Newer pensions could give you tax benefits that older ones don’t offer.
So again, it’s always worth checking each policy individually and getting some advice from a Financial Adviser.
When should I leave a pension where it is?
In some cases it’s better to leave pensions where they are. Some older pensions were not affected by tax changes established in 2006, and these might offer benefits like guaranteed annuity rates which promise you a guaranteed income after retirement. That could be lost if transferred to another pension pot.
Final salary scheme pensions are probably best left alone too, due to the nature of their payouts when you retire. They offer retirement income for life based on your salary while employed and your years of service.
Some people opt to create a self invested personal pension or a SIPP, which lets them choose where they want their pension money invested. This is beneficial to those who want to put their money into sustainable funds and make ethical investment choices.
Whatever your situation with your workplace pension, the first thing to do if you’re thinking about consolidating is speak to a Financial Adviser. We can help you figure out the most suitable solution for you based on your individual needs.