With roughly £26.6billion lying in unclaimed pension pots, the question of whether to consolidate one’s funds is a common concern for many.
The average works more than 10 jobs in their lifetime and consequently, more pension pots can accumulate. But is consolidating pots the right answer?
Stuart Carswell, director at Pareto Financial Planning told Express.co.uk: “Managing a single pension fund or account can be easier than juggling multiple accounts with different providers, investment options and charges.”
By consolidating a pension, Mr Carswell said: “You can potentially reduce fees and administrative charges and improve your overall returns. A one pension approach can also simplify the process of designating beneficiaries, ensuring that your loved ones receive the benefits you intend.”
However, this may make it appear to be an attractive option, there are a number of important things to consider before taking the leap, Mr Carswell warned.
He said: “Some pension plans may offer specific benefits or guarantees that may be lost upon consolidation and they may charge exit fees or penalties when you transfer funds out of their plans.
“There may be tax implications associated with the consolidation of pension funds, so it’s really important to consult with a financial advisor or tax professional to make sure you understand the implications.”
There is also a possibility that the pension fund a person consolidates into may have a limited range of investment options.
Mr Carswell said: “If you have a wider range of funds in your existing pensions, this could be a disadvantage. Finally, concentrating all your retirement savings with one provider could potentially increase your overall risk.”
So, when exactly might consolidating pensions be beneficial?
Mr Carswell said: “Consolidating a pension can be beneficial and advantageous if you are trying to simplify your retirement planning and you have multiple pension plans with different providers. Consolidating can make it easier to manage your retirement savings.
“Advances in technology have brought the cost of pensions down. Historical plans may be more expensive and have higher administrative fees and charges.”
By consolidating, a saver could potentially reduce these costs, leaving more money in their pension and subsequently improving the overall return on their investments.
However, Mr Carswell noted: “While pension consolidation can offer numerous benefits, it’s essential to consider the potential drawbacks and carefully assess your individual circumstances.
“You should review the terms and conditions of your existing pensions, account for any exit fees and tax implications, and evaluate whether the new pension plan aligns with your financial goals.
“It is also imperative that you do not lose any unique benefits, such as guaranteed annuities, spouse’s benefits, or early retirement options on your existing historical pension plans.
“Ultimately, your decision should be based on your individual financial circumstances, long-term goals, and the specific terms of your existing pension plans.”
