How pension consolidation could help you keep track of your pensions

Pension Awareness Week, 14 to 18 September this year, is a national drive to get people thinking about life after work.

If your retirement date is approaching, you’ll want to start engaging with your pension. This includes knowing exactly how much you have in your pension pot. But what if you’ve lost a pension? How do you find it again? And is there a better way to keep track of your smaller funds?

Here, we look at where you can turn for help to find your lost pensions and ask whether pension consolidation – moving all your pensions into one pot – might be right for you.

All your plans, in one place

The main benefit of pension consolidation is that it brings all your plans together, in one place. This makes it easier to keep track of them. You only have one set of paperwork to look after and one set of scheme details to remember.

As your retirement nears and you check in on your pension pots, ensuring they are performing as expected, you might find yourself requesting valuations and statements from several different providers.

The Telegraph reports that more than a third of professionals are expected to have at least ten jobs in their lifetime. This could amount to ten workplace pensions, with private pensions besides.

Pension consolidation gives you the chance to reduce that number to one. Receiving one statement, having one figure for your whole pension provision, and no further calculations to perform, could make understanding your retirement finances that much easier.

But what if you’ve lost track of earlier workplace pensions?

First, you’ll need to think about whether you still have a pension entitlement. Older workplace pensions may have specific rules, for example, around age or length of service.

You might have extinguished your pension entitlement when you left your employer, had contributions refunded to you already, or not made any contributions at all.

Whether you are unsure if you have a right to benefits in a ‘lost’ scheme or are adamant that you do, the Pensions Tracing Service can help you track down the contact details for your pension provider. Alternatively, speak to us.

Take control of your pensions

Multiple pension pots could mean many different scheme providers. Each scheme will have its own charges and fund performance and it’s likely that they won’t all align with your long-term pension plans.

Understanding how each scheme works can help you choose the right one to consolidate your pensions into.

Some older pensions could have higher charges and be less flexible. Newer plans, on the other hand, might grant you a greater level of control over your investments.

Not all schemes can offer the functionality of online portals or the ability to switch funds and make changes in real-time. By transferring to the one that does, consolidation could give you back control over your pension investments, increasing your input and even your engagement.

There might not be a ‘right’ answer but get in touch and we can help you make the best decision for you.

The downsides to consolidation

One of the key problems you might face when consolidating your pensions is higher tax charges when you come to take benefits.

With all your pots in one place, the one-off amounts you could expect to receive will be higher too. This could be especially true if you decide to access your whole pot as a one-off lump sum, for example.

When you take an Uncrystallised Fund Pension Lump Sums (UFPLS), HMRC tax the payment on a ‘month 1’ basis. This means they assume the payment is the first in a series of regular monthly payments that will continue throughout the year. You only receive 1/12th of your true tax allowance and are consequently overtaxed.

You can claim the overpaid amount back, but this could be time-consuming. If you have specific, or time-sensitive, plans for the money, what impact would a delay have?

Lastly, be aware that some older plans have valuable benefits attached. It’s likely these will be lost on transfer.

Defined Benefit (DB) schemes, such as the NHS pension scheme, provide final salary-linked benefits whose value often outweighs what you’d receive by transferring away. This could include a Guaranteed Minimum Pension or more generous death benefits.

Check with your pension schemes to see if any such benefits exist or speak to us.

Get in touch

Pension consolidation won’t be right for everyone. We can help you weigh up the true value of the benefits your current scheme provides and help you decide if transferring away is the correct choice for you.

Please contact us if you’d like to discuss consolidation or any other aspect of your long-term financial plans.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

Workplace pensions are regulated by The Pension Regulator.