Should I consolidate my pensions?
- When and how to transfer your pensions
- How pension scheme charges can affect your the returns in your pension pot
- The pension consolidation pitfalls to watch out for
When to transfer your old pensions and when not to
If you've accumulated numerous workplace pensions over the years from different employers, it can be difficult to keep track of how they are performing. There is a danger that long-forgotten plans will end up festering in expensive, poorly-performing funds and the paperwork alone can be enough to put you off becoming more proactive.
So, is transferring everything into one easy-to-manage pension the way to go? There are advantages to switching your pensions but there are also pitfalls. The best course of action will depend on what kinds of pension you have and how long you have until retirement.
Consolidating pensions when you move from job to job
Making the most of your pensions now could have a significant impact on your happiness in retirement; getting it right could mean a higher income, or even an earlier retirement date.
If you’re lucky enough to be in a final salary scheme it will almost always make sense to stay put, but if you have any other type of pension – where success or failure depends on the performance of your investments - consolidation is worth considering.
The impact of high charges on your pension schemes
The negative effect of high charges and poor fund performance should not be underestimated.
If a 35 year old with a £10,000 pension pot invests until 65 in a fund that achieves 5% annual investment growth, but charges 2% a year, the pot will be worth £23,720.
The same £10,000 invested in a fund that achieves 7% annual investment growth, with a 1.5% annual charge, will be worth £48,541 – more than double. A better return will never be guaranteed but more investment choice and lower fees will give you the best chance of achieving one.
If you’re interested in consolidating, a personal pension, such as a self-invested personal pension, can provide a huge amount of investment choice at a relatively low cost.
And if you’re not comfortable tackling big decisions on your own, an independent financial adviser can help. They will charge a fee, but if you value the advice, you have plenty of time until retirement for your new investments to recoup the cost.
Consolidating pensions in your 50s or 60s
As you get nearer to retirement, your pension pots should have appreciated significantly and you may decide that any exit penalties or fees for advice represent significant disincentives to act – after all, you will have less time to recoup the cost before retirement.
But if you’re unhappy with your existing arrangements, and your funds are letting you down, it could still make sense to consolidate. You may still have ten or fifteen years to go, and transferring now gives you the added benefit of having all your money in one place for the purpose of buying an annuity or putting your money into income drawdown.
The Which? Money Helpline has a team of qualified experts that can help with your questions on consolidating your pension. Sign up to a £1 trial with Which? and speak to one of our experts.
- All you need to get ready to retire - expert retirement help in one place
- Call the Which? Money Helpline - if you have a question about retiring
- How much will you need in retirement? - we guide you through the retirement essentials
Which? Limited (registered in England and Wales number 00677665) is an Introducer Appointed Representative of Which? Financial Services Limited (registered in England and Wales number 07239342). Which? Financial Services Limited is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited. Registered office: 2 Marylebone Road, London NW1 4DF.