Most people have a number of jobs throughout their working life and with this, multiple pensions, especially after auto-enrolment began in 2012. The average UK worker is expected to have 12 jobs throughout their life meaning keeping track of multiple pensions could get a bit tricky.
The Department for Work and Pensions (DWP) recently announced the Pensions Dashboard Programme has now been delayed. When this does finally launch, it will allow everyone with a pension - including a State Pension - to view all their retirement pots in one handy place online.
According to recent research, almost £27 billion is currently being lost in forgotten pension pots, however, Sam Robinson, Principal Financial Advisor and Pension Transfer Specialist at Almond Financial, has shared his top tips on the pros and cons of pension pot consolidation and how workers can get the most out of their money in later-life.
Sam explained some workers choose to consolidate their pensions in one place, or a ‘pot’, allowing easier management and ensuring they aren’t forgotten. Although it is important to note, that every pension system is different and pension pot consolidation may not be suitable for everyone.
Consolidating your pensions boasts a number of benefits including:
- Flexibility should your circumstances change
- Fewer annual management charges
Sam said: “There is no doubt, consolidating your pensions will not be for everyone and it’s critically important to evaluate both the pros and cons of doing so before making any decision. When it comes to pension pot consolidation, it’s certainly not a one size fits all approach.
“Ensuring you have the appropriate processes in place for life after work will ease any concerns you may have.
“Managing your pension can be a daunting task but if you aren’t sure where you can start, please speak to your pension providers or a financial advisor for the best course of action.”
Five tips to make the most of your pensions
Keep details of all pension schemes
This may seem trivial on the face of it, but ensuring you keep all relevant details of your pensions is vital. Managing multiple pensions can be very difficult and this process is only made more so should you lose the relevant details allowing you access.
Whether you choose to consolidate your pensions or keep them separate, keeping the relevant details such as login details to track performance, will make your life considerably easier when it comes to keeping track of your pensions.
If you are within five years of retirement, have a plan for retirement
Planning is the only way to know how much you need, how much you can save, and how to make the most of what you have when it comes to retirement.
Unfortunately, pensions no longer stretch as far as they used to, with an increased cost of living so planning for life after work has never been more important.
A recent study found that the UK state pension alone is leaving the average pensioner with just £28 per week extra after covering essentials so ensuring you are maximising your retirement benefits and planning appropriately is crucial.
Ensure your relevant pension systems match your investment approach
It’s important to remember that pensions are investments and therefore should be treated like any other when it comes to risk.
Workplace pensions tend to have default funds but a specific scheme may not match your investment profile and your attitude to investment risk.
Ensuring your pension has suitable investment options before consolidating is also important as some workplace pensions don’t have a broad range of multi-asset risk rates funded.
It’s important to run through the details with a fine-tooth comb before making the decision to consolidate.
Ensure your pensions don’t contain guarantees or protected benefits before consolidating
Consolidating your pensions requires a great deal of consideration, especially when it comes to certain schemes offering guarantees and protected benefits.
Some pensions can contain a range of what is known as protected benefits that can be valuable in the long run. Whether this is a guaranteed annuity rate or a promised minimum level of income when you retire, consolidating or transferring pensions could mean you lose these benefits if not taken into consideration.
Ensure your pensions are nominated to your spouse or children
An important thing to remember is that pension benefits do not form part of your estate when you die so your pensions will need to be nominated to your spouse or another qualifying family member.
Nominating a relevant beneficiary will ultimately ensure your family reap the benefits of your pension after you have passed and ensure they are looked after financially. Of course, in the short term, it will also give you peace of mind that in such an event, your money will be distributed fairly and securely in accordance with your wishes.
Just remember, whether you choose to consolidate your pensions or not, it’s important to keep track of them so that you can get the most out of your money in retirement.
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