Why Should I Consolidate My Personal Pensions?
Referring back to my post ‘Buy On The Stock Market Corrections & Pullbacks‘, my wife had two personal pension funds. The two funds were managed by two different pension providers. There’s nothing wrong with having multiple pension providers. However, being a person that likes to keep things simple, I chose to consolidate them. Consolidating and transferring my wife’s personal pensions allows for easy tracking and administration going forwards. It’s easier to monitor the investment performance of just one pension plan. Sometimes, another reason for transferring and consolidating pensions, is to find a pension provider that charges lower fees. The fees can be annual management charges and transaction charges.
The reason I decided to transfer my wife’s pension plans to another pension provider is wanting more flexibility with regards to investment options. I had decided that I wanted to have the flexibility to invest in Stocks, Funds, ETF and Shares. That meant that I needed to transfer my wife’s pensions to a Self Invested Pension Plan (SIPP) provider. Self Invested Pension Plans are generally for people who want a more hands on approach to managing their pensions. I chose a low cost SIPP provider which will allow me to manage the investments going forwards. Ready made portfolios are available as well, as are off the shelf investment funds.
Beware Of Exit Fees and Guaranteed Benefits
Some pension providers may charge exit fees to transfer your pension. You should check your annual pension statement, where transfer charges are often stated. Alternatively, speak to your pension provider about whether you are required to pay any transfer penalties. If you are required to pay a penalty, it may still be worth while consolidating your pensions. If your new pension plan has lower ongoing charges, it may offset the amount you lose. Especially if you still have a long time until retirement.
Before you decide to consolidate your pensions, you should also check to see if you’ll lose any guaranteed benefits. If you have a defined benefit pension scheme, also called a final salary scheme or career average scheme, then check what will happen to these guarantees if you move your money. For pensions with guaranteed benefits that are worth more than £30,000, you will have to seek independent financial advice before you move them.
Why Wouldn’t I Transfer and Consolidate My Pensions?
Of course, it could be that you simply can’t be bothered to consolidate your pensions. When I transferred my wife’s pensions to another pension provider, it took 6 months. It can often take a long time and there’s some paperwork involved also. Some people may prefer to use the services of a financial adviser or planner to manage the transfer process for them.
I decided to do the pension transfers myself. I had to do all the chasing to keep things moving. The receiving provider acted in a timely manner but not the current providers. The new pension provider stated that they would handle the transfer process. But the existing providers were reluctant to deal with them. They insisted on going through me until I had signed all the relevant paperwork.
There could be a good reason for not consolidating small pension pots under £10,000. You may be able to take up to 3 pension pots under £10,000 as a lump sum. If you do choose to maintain one or more small pension pots, be sure to review the charges you are paying your pension provider. They can very quickly eat into the pension fund. In some cases, high fund charges can erode rather than grow your pension over time.
How To Find Lost Pensions
It’s not unusual for people to accumulate a number of pension pots throughout their career as they switch employers. People lose track of them as they move house, or the statements just gather dust along with all the other paperwork.
The government currently has a Pension Tracing Service to assist with tracing lost pensions. In 2019, the much awaited Pensions Dashboard is due to be launched. This will allow you to see all your pensions from current and previous providers and employers, alongside your state pension. Below is an image of what it may potentially look like.
For More Information
If consolidating your pension pot(s) is something your are considering, then I recommend the two websites below as a resource for further reading. As always, if you are in anyway unsure about what’s involved with transferring pensions, then you should seek professional financial advice.