A new job often comes with a new laptop, new colleagues – and increasingly, a new pension.
After several career moves, it’s easy to find yourself with a collection of separate pension pots administered by different providers.
Combining them can sound like an obvious piece of financial housekeeping. One login, one statement and one pot to monitor instead of four.
But simpler doesn’t automatically mean better.
Why Consolidate?
For defined contribution pensions, consolidation can make your retirement savings easier to understand and manage. It can also potentially give you different investment choices, retirement options or lower charges.
MoneyHelper notes that even relatively small differences in fees can become significant when money remains invested for many years.
There is also the basic benefit of visibility. A pension you can see and engage with is less likely to become the forgotten pot attached to an employer you left 15 years ago.
Before You Press “Transfer”
Older pensions can contain features that are difficult – or impossible – to replace.
These may include guaranteed annuity rates, protected pension ages, bonuses or other valuable guarantees. Transferring usually means giving these up permanently.
Defined benefit or “final salary” pensions deserve particular care. MoneyHelper notes that the FCA and The Pensions Regulator’s general position is that most people are better off retaining the guaranteed benefits of a defined benefit pension rather than transferring to a defined contribution arrangement.
So, consolidation should be a comparison, not simply an administrative exercise.
Check the charges on the old pension and the proposed new one. Look at investment options, guarantees, retirement ages and withdrawal flexibility. Establish whether exit fees apply.
And remember, you don’t have to consolidate everything. Three pensions can become two if only one transfer makes sense.
