Staying ahead in your career while playing hard and keeping up with the demands of a busy home life can leave you squeezed for time. With so much going on, keeping track of your retirement savings may be the last thing on your mind.
You may already be trying to work out when you last checked in on your pension. Indeed, do you even know how many pensions you have?
Increased job mobility means many of us collect multiple pensions as we move from one job to another. And things only become more complicated for expats – especially if you’ve worked in multiple different countries during your career.
Here’s the problem: multiple pensions can make it difficult to understand exactly how much you’ve saved and if you’re saving enough for retirement.
But that’s not all.
Once you stop working, dealing with many pension pots – potentially spread across other countries – could make it extra challenging to create a reliable income plan.
Getting on top of multiple pensions
As you may have realised, having several pensions can be inefficient and difficult to manage.
Managing multiple pots doesn’t just make it harder to track your savings and plan for retirement – it can mean you’re more likely to lose pension details too.
Indeed, in 2024, the UK’s Pensions Policy Institute estimated that there was roughly £31.1 billion sitting in lost pension pots. That’s almost 3.3 million pots with an average value of about £9,500.
Feeling more motivated to get on top of your pension paperwork?
Excellent! Because putting the work in now could help to reduce future pension admin.
Once you’ve located all your separate pots, you may find that consolidating your pension savings into one easy-to-manage pot makes a whole lot of sense.
Keep reading to find out more about the benefits of consolidating your pensions and a few examples of when it may be wiser to stick with separate pots.
Should the idea of trying to get on top of this while juggling everything else on your plate fill you with dread, get in touch. We’ll talk you through what you need to consider and help you work out what pension savings you have and where.
Pros of pension consolidation
There are various benefits to consolidating your pensions.
Easier to administer
A single pot is far easier to administer, compared to handling paperwork and logins for numerous schemes.
This is even more important when you come to draw income from your pension, as dealing with a single provider will be far simpler.
While all pension providers will forecast the value of your pension when you reach retirement age, how they calculate this will vary.
Understanding a single forecast will be a whole lot less complicated than trying to calculate what income you can expect when you’re reviewing several different forecasts.
Potentially lower cost
To manage and invest your pension, providers usually charge a percentage-based fee. Each provider will have their own fee structure, so it’s important to understand what you’re paying.
Ultimately though, the more schemes you have, the more providers you need to pay fees to.
High fees – which tend to be more prevalent with older schemes – could significantly reduce the value of your pension and the income you’ll receive in retirement. In fact, research from the Institute for Fiscal Studies found that some savers could lose thousands of pounds if they don’t move older pensions to ones that offer better value for money.
Aligned investment strategies
Different pension providers will manage your money in different ways. This may mean that your pension investment strategies won’t necessarily complement one another.
In turn, this could expose you to more risk than you’re comfortable with.
By putting all your money under one scheme, you can be more confident that your money is aligned with your goals and tolerance for risk.
Benefits of keeping separate pots
With all that said, there are circumstances where it may be better to maintain separate pension pots.
Defined benefit schemes
If you have a defined benefit (DB) or “final salary” pension scheme, it might be wiser to leave it as is.
DB schemes tend to present less risk because they provide a set, consistent amount in retirement, and the income provided is often linked to inflation.
Some DB pensions also have additional benefits, such as providing your spouse, civil partner, or child with a pension if you pass away. If you transferred out of a DB pension, you’d lose these benefits.
If you’re thinking about transferring out of a DB pension, be sure to get in touch for specialist advice before doing so.
Greater diversification
While consolidating multiple pensions could help you to align your investment strategies, keeping them separate can offer you greater diversification.
A dip in the value of the investments under one scheme could see your entire pot lose value.
However, if you have multiple pots, they’ll likely contain a variety of investments in different industries, sectors, and geographical locations.
This could help to insulate you from market movements, ensuring some of your pots continue to grow in value, even if others suffer because of difficult economic circumstances.
Advantages of certain schemes
Some pension schemes come with specific advantages that you may lose if you transfer your holdings out.
For example, you may receive a guaranteed annuity rate from your pension provider. This rate may be higher than what you’d be able to find if you looked to buy an annuity on your own.
It may be worth keeping some of your retirement funds in a certain scheme just so you can retain benefits like this.
Finding the right strategy for you
Choosing whether to consolidate your pots comes down to you and your financial goals.
If you’d like help figuring out what is best for you and your long-term plans, please get in touch – we’d be delighted to help you understand all your options and ease the admin burden.
