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Life’s complex - make your pensions simple

Our lives aren’t as simple as they used to be. The once predictable path of work, marriage, kids and then a relatively short retirement is being broken down.

Now we’re much more likely to have multiple careers during our lives, and even multiple jobs at the same time.  According to the Department for Work and Pensions1, 25% of us will work for 14 or more employers throughout our lives.

Fewer of us are waiting to get married before we have children2 We’re taking career breaks - or want to - but also working longer into older age as well, with more than one in ten of us3 continuing to work beyond pension age.

All these new choices are shaped, in part, by our finances. Building long-term savings is what allows you to take the paths in life that you want, or to adapt and cope when life changes unexpectedly.

Pensions are crucial to that and as lives get more complicated, so do our pensions. The more jobs we have the more pension pots we pick up along the way, and these may all have different rules about how you access your money and how much you pay in charges.

That’s why many see the attraction of bringing their pensions together in one place. This can be done by transferring pensions from previous employers into a Self-Invested Personal Pension (SIPP). Having all your pensions in a single place means you can more easily keep tabs on the size of your savings and how they are invested. And when it comes time to retire, you can be sure you have the full range of options for accessing your money and can do so simply.

Is consolidating right for you?

There are a few things to consider:

Do any of my existing pensions contain valuable benefits?

One of the most important things to check is whether any of your existing pensions contain valuable benefits that will be lost if you transfer away. For example, final salary pensions, guarantees of income or investment returns, early retirement options, a greater entitlement to tax free cash than the standard 25%, life insurance, to name a few. If this is the case, it’s likely that it won’t be in your best interest to transfer.

Compare the cost

There will always be some kind of charge for investing and administering your pension money and this will influence the level of your pension fund over time.

There is typically a service fee, usually a percentage of the money you have invested, payable to your pension provider to cover the administration of your contributions. In addition, you’ll pay a separate fund management charge for each of the fund providers you invest your money with. Different pension providers may charge different amounts for the same fund because they can sometimes negotiate discounts which they pass on to customers. So, when comparing service fees, you need to compare fund charges too.

Paying a slightly higher sum overall can be worth it if you value the other benefits of consolidating your pots.

Is there a cost of leaving an old scheme?

Some pension schemes charge a fee if you exit with your money. If an exit fee applies, you need to decide if you’re willing to pay this for the benefits of consolidating. Fidelity will cover up to £500 if your current providers charge exit fees.

What do I gain by consolidating?

The great benefit of consolidating pension pots is that they become far easier to look after because everything is in one place. That means you always know the value of your total savings and a better idea of the level of pension you’re heading for in retirement.

Knowing with certainty the size of your pot means you can react if you feel you are under-saving.

Another plus is that you have far greater control over how your pension money is invested. The investments in more traditional workplace pensions can be more restricted than those in a modern SIPP, which give you a wide choice of investment options to help you get your money working harder.

Having your pots in one place means you can apply one investment strategy to all your retirement savings, and ensure you’re not over-exposed to one market or type of asset.

Flexible income options at retirement

It may be that your former workplace schemes do not give you the full range of options for accessing your pension money from age 55. A quarter of your pension pot can be accessed from age 55 as a tax-free lump sum. Holding pension money in one place makes this a much simpler process.

1 Source: Department for Work & Pensions 2011: Meeting future workplace pension challenges
2 Source: Office of National Statistics - Births in England and Wales 2018
Source: Office of National Statistics Mar-May 2019

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Important Information

The value of investments and the income from them can go down as well as up so you may get back less than you invest. Tax treatment depends on individual circumstances and all tax rules may change in the future. You cannot normally access money in a SIPP until age 55. Pension transfers can be complex and pensions with safeguarded benefits and advised transfers are not eligible for the cashback offer. Please read our pension transfer factsheet, cashback T&Cs and exit fees T&Cs.

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