For most people, there is no such thing as a ‘job for life’ anymore – most of us now shift from one role to the next multiple times. In many cases this may be due to career progress. But in some, it may be due to getting made redundant, or simply wanting to change track and try something new.
Figures suggest the average worker will have 11 different jobs during their life. Equally, as the jobs market has become increasingly mobile, even some younger workers in their 20s say they already have four or more pension pots behind them.
What does this mean for pensions?
While moving from job to job is all well and good, especially as it means we can take advantage of different opportunities as they present themselves, problems arise when it comes to the pensions we leave behind. Under auto-enrolment, employers are required to offer a workplace pension unless workers explicitly opt out. This means you could end up with 11 separate pots to your name (and potentially even more).
Risk of losing track of your pensions
As you go through your working life – changing career multiple times, and perhaps moving house lots of times, too – there’s a risk you could lose track of the ‘small pots’ you have built up. Leave it until retirement to do anything about this, and you could suddenly find yourself in a panic over the pensions you have lost. Official figures suggest more than 2.8 million pots are considered ‘lost’. If you’re not careful, you could reach the end of your working life, only to discover you are missing out on thousands of pounds.
How to avoid losing pensions
This is where pension consolidation comes in. This involves you bringing all your pensions together in one pot.
Having all your pensions in one place can make a huge difference in terms of making them easier to understand – and more efficient. Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “You have one overarching view of what you have, and you are cutting down on administration.”
Helpfully, once you’ve consolidated, you only have to contact one provider when your circumstances change. At the same time, it can help you keep tabs on your savings. You could even find a home for your pensions which better suits your retirement plan. Ms Morrissey added: “Consolidating in a SIPP (self-invested personal pension) can also give you greater investment choice, as well as cost savings.”
But what about the ‘pot for life’ reforms?
Government proposals – sent out for consultation in the recent Autumn Statement – would see the creation of a single ‘pot for life’ (or ‘lifetime pension’) into which workers can direct a whole career of different employer contributions. With a ‘pot for life’ you would no longer have to keep track of multiple disparate pots. The hope is this could also help savers achieve better value for money. But while these reforms could be a game changer for the UK pension system, they are still only at a consultation stage right now. It could take years before they actually get implemented. The good news is, you don’t need to wait for these rules to come into play before taking action. You also don’t need to wait until you’re approaching retirement. You can be proactive and take steps now to take control of your pension wealth.
How to consolidate your pensions
If you decide that this course of action is right for you, you need to go about tracking down all your pensions. A good first step is to use the Government’s Pension Tracing Service. Once you’ve found all your pots, you can then transfer them to your new plan. It’s important to contact the provider to check for any additional fees, and to get an understanding of the Ts and Cs of your new pension product. To find the right home for your pension, use Compare and Invest once you know how much you will be transferring.
Reinvigorate your retirement planning
Bringing your various pension pots together can be a good way to reinvigorate your retirement planning.
It’s much easier to see if you’re on track for the retirement you want. And if you realise you are way off your target, you have time to make up some ground.
Equally, you may approach a larger pot in a different way from the way you approach several smaller ones. Whereas with a smaller pot, there may be more of a temptation to take it as a cash lump sum and spend it, with a larger pension, you may be more likely to leave it where it is. This can result in better long-term decision making – potentially setting you up for a more comfortable retirement.
Things to watch out for
While all this may sound persuasive, before opting to consolidate you need to check for exit fees or charges for transferring your pensions. You also need to ensure you won’t lose valuable benefits and guarantees. Older plans can come with guaranteed annuity rates (GARs) higher than those currently available on the annuity market. At the same time, transferring a ‘defined benefit’ scheme is almost never a good idea.
Seek pension consolidation advice
As pension consolidation won’t be right for everyone, you need to weigh things up carefully prior to making any decision. If you’re not sure of the best course of action for you, it’s worth seeking guidance or advice. They will be able to assess your individual circumstances and make recommendations, accordingly. To find out more about finding a financial adviser, head here.
Photo by Andrii Yalanskyi on Canva.
