When to think about consolidating your pensions

With the average Brit entering the workforce today expected to work their way through nine jobs on average and one major career change in the course of 48 years of their working life, keeping on top of your pension plans can be a difficult task.

If you’ve moved jobs a few times, chances are you’ll have paid into a number of different pension pots. If that’s the case you’ll know how difficult it can be to keep track of what’s where.

The danger is that you could find out – too late – that your hard-earned money isn’t working as hard for you as it could!

Here’s how to make staying on the ball easier when it comes to pension planning.

When considering your options, seek independent financial advice.

What is pension consolidation?

Consolidating your pension means combining several pension plans into one pension pot, doing this means you have fewer statements to monitor and could cost you less in management charges. 

The advantage of consolidating

The big advantage of consolidating your pensions is that it’s so much easier to manage them if everything’s in one place.

You can see at a glance how much you have and how it’s growing. Having all your pensions in one place makes it easier to keep on top of costs. If you don’t keep an eye on these you could find they eat away at your future retirement income.

Some older pension plans have higher charges than newer ones, so do your homework. You could find that you can reduce the management fees you’re paying by switching. Just check there aren’t any prohibitively high penalties for doing so first.

Another good reason to consolidate is to get a better return on the money you’ve diligently paid into your pension(s) over the years.

Say for instance, you’re 40 and have £30,000 sitting in a pension fund that’s invested in poorly managed funds earning a measly 3.5% a year. That should give you about £70,000 when you’re 65. If you're willing to accept a bit more risk, or can access a better managed fund that generates, say, an annual return of 7.5% return (not guaranteed and used purely for illustration) then you might end up with around £183,000 at the age of 65.

Remember though that with potential higher reward comes higher risk and there are also no guarantees that a higher risk fund will deliver the higher returns. You also have to be comfortable with the level of risk you’re taking. So think before you switch! And take professional advice if in any doubt.

Considerations when transferring your pension

Before transferring, make sure you figure out whether it’s right for you, this will depend on many factors:

• your personal circumstances
• the nature of your other pension arrangements
• when you plan on accessing your pension
• Costs involved 
• Investment options
• Your workplace pension plan

Still undecided?

If you’re undecided about switching or consolidating your pensions, speak to an independent financial adviser first. Pension planning is at the heart of your retirement plans and errors can seriously affect your financial future, so any fees that are incurred in getting independent advice will prove to be money well spent if it saves you from making a costly mistake