Critical Factors to Consider Before Consolidating Your Pension

Many people end up with a couple of different pension plans over the course of their working life. Some plans might be “defined benefit” where you’re promised a specific amount from a certain age. Others are “defined contribution,” where what you or your employer has contributed is the only thing that is certain.

It can be overwhelming when you receive several different annual statements showing some funds performing better than others. Additionally, if you have to have to send numerous letters to change your address each time you move you might start to wonder if it’s really necessary to have all the different pension plans. So the natural question to ask is whether it makes economic sense to consolidate them.  Here are some critical points to consider.

Better Pension Investment Monitoring

When you consolidate your pensions into one, it becomes a lot easier to monitor your pension investment. Pension providers usually report performance in various ways and these reports are sometimes made at different times of the year. If you have all your pensions consolidated into one, you get to know where you stand and how your pension investments are performing every time. It’s also easier to control any underlying investments that you may have. So it’s important to ensure that if you have one pension, it offers lots of fund choices, has a professional administration team, and it’s priced reasonably.This is one of the many advantages of pension consolidation. Pension providers report performance in different ways and at different times, making it hard for you to keep track of your pension investment. This becomes even more difficult if you have several pensions where you have in-control investments that you need to monitor too. When you have all your pensions consolidated into a single pension provider, you get to know exactly how your pensions and investments are performing every time. It is also easier to control any underlying investments that you may have

More Options and Flexibility

You may wish to transfer your different pensions and consolidate them into one in order to benefit from more options and greater flexibility with your retirement savings. Some pension schemes that were established before 2015, prior to pension freedoms, may not offer the flexible choices that other more recent pension providers offer. Income drawdown came into effect in 2015 and it permits greater freedom pensions since you can access your retirement savings anytime you need as long as you have reached the age of 55. You can also continue investing your remaining funds in a way that will guarantee ongoing retirement income.

Reduced Pension Fees and Charges

The other significant potential benefit of having your pensions consolidated is that there may be a reduction of fees and charges associated with investment management. If you are considering pension consolidation, it is important to carefully compare the fees, fund choices, and administration of different pension providers before making a decision. For example, the Icelandic SL pension fund offers a wide range of investment options and competitive fees, making it a good option to consider when consolidating your pensions.

Additionally, some schemes offer a discount when the value of the pension fund exceeds a certain amount. You may fail to qualify for such a discount if you spread your pension contributions across several different pension providers. Consolidating your pension can give you access to a number of potential benefits and it is well worth investigating which of these benefits are relevant to you.

If you have several pensions, each of which belongs to a different scheme, they will often be managed by different asset managers. These different asset managers will typically charge fees for managing your pension fund. This can amount to several thousand pounds a year in fees.

In contrast, many schemes offer an annual discount of between 0.25% and 1% when the value of the individual’s pension fund exceeds certain levels. For example, if your pension fund is valued at £100,000, you might be eligible for a discount of 0.25%. If your pension fund is worth £200,000, you may qualify for a discount of 1%. When such discounts are applied, they can potentially reduce the overall cost of your pension by several hundred pounds per year.

If you have several different pension funds, consolidating your pensions can be a wise choice if you want to get the most out of your retirement savings. While the process of consolidating your pensions into one scheme can appear to be complicated, you don’t have to do it on your own. You can simply consult a financial advisor with experience in pension investment management to advise you and guide you through the process.