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Should I consolidate my pension pots?

Published 30 January 2016 by

Nowadays, it’s unlikely that you’ll stay with the same employer from the start of your career to when you retire. As a result, it’s not uncommon to accumulate a few different pension pots throughout your working life. If you’re in this situation – whether you’re nearing retirement or you’ve only been working for a few years – we’ll take you through whether it’s worth consolidating your pension pots.

Consolidating your pensions

There are a number of reasons why it could be a good idea to consolidate your pension funds. It will make it much easier for you to keep track of how your pension savings are performing, you could find a better investment for your money and you could get rid of the higher charging plans, which you might have if you’ve had a pension for a while. Dealing with one pension provider instead of several should make life slightly easier as well.

With that said, there are a few pitfalls that can come with transferring your funds into one pension pot – most notably, what you’d lose out on if you switched to a different provider. Some pensions come with benefits that are just too good to give up – for example, pension schemes that offer Guaranteed Annuity Rates tend to have more competitive rates than what’s being currently offered, so it’s probably not worth switching out of these, if you’re unsure get some professional advice.

The same goes for if you have a defined benefit pension scheme – where the amount paid is based on a formula of how many years you’ve worked for the employer and the salary you’ve earned – as you’re provided with a guaranteed income and generous benefits to your spouse or partner when you die, so in most cases it wouldn’t be worth transferring.

Something else to look out for is that you may be charged exit penalties for transferring money out of a pension scheme. These charges can be significant depending on the size of your fund, so it’s worth checking your policy before you attempt to make the switch.

When to transfer and when not to

If you’re in the early stages of your career, you may not think it’s important to consolidate your pension funds just yet. But if you’ve taken out a pension scheme with a few different employers, getting these in order now could help you to set up a nice retirement fund for later on. Choosing the right pension could see you enjoy a higher income and even an early retirement as well. But again, whether consolidating is right for you will depend on the type of pensions you have in place.

For those of you nearing retirement, you may not want to take the risk of consolidating your pension pots at this stage. After all, your various pensions are likely to have grown by now and you may not want to risk putting a dent in this by having to pay exit penalties, especially as you’ll have less time to recover these costs before you retire. This could be worth looking into however, if you’re unhappy with the way your pension is currently.

If you need help to make this decision, you could seek the help of an independent financial adviser, but this will come at a cost. For free advice, get in touch with services like Money Advice Service or Citizens Advice Bureau.

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