26th June 2014 at 10:46am
Over the course of your working life the chances are you’ll change jobs a few times, picking up different pension pots along the way.
After a number of years, you may even forget about the odd pension pot. To help you manage your pots it’s possible to bring them all together, making it easier for you to keep track of your retirement savings.
Don’t underestimate the importance of keeping track of your pension. The Pension Tracing Service reckons £3 billion is lost in UK pensions, affecting around 5 million people.
Keeping track of your pensions
Combining your pension pots can prove a good move in many circumstances, not least as it allows you to more easily keep track of how your investments are performing.
This is a definite advantage if you are approaching retirement and want to get a grip of your various sources of retirement income. Performance is another reason to get hold of all of your pension pots– if you’ve forgotten about one or more the chances are they are not working as hard as you’d like. Poorly-performing funds are of little use to you, and regular reviews are essential for anyone who wants to make the most of their retirement income.
Things to consider
There are a number of things to consider when you’re thinking about combining pensions.
- If you have a defined benefit (DB) pension scheme it’s probably best to keep it. DB schemes pay out a certain retirement income every year once you reach retirement age based on the number of years you paid into the scheme, and your salary. It’s best to take independent financial advice if you are thinking of moving your pensions.
- If you are a member of an occupational pension scheme you may be entitled to take more than the standard 25% tax-free lump sum. However, you could lose this entitlement if you transfer out.
- You may have other benefits from your pension – e.g. life cover or dependants’ benefits, so it’s worth checking these with your pension provider before transferring out.
- If you have up to three small pension pots – each of up to £10,000 you can take these as a cash lump sum, thanks to new rules introduced earlier this year by the chancellor.
How to avoid costly fees
It’s also worth bearing in mind that you may pay exit fees for moving your pension pot, which may see a sizable proportion of your hard-earned retirement income shaved off. For this reason, always check for fees and charges if you are transferring out of a scheme.
While many providers won’t impose a penalty for transferring as they want the business it’s still best to check this up-front.
Retirement is inevitable, so how you plan to fund it is just too important to ignore. Whether you have accumulated many small pension pots over your working life, or have consolidated them all into one, the key priority should be to make your money grow and avoid any costly charges.
All information accurate at time of publication
Remember a pension is an investment and can go up or down in value. There is no guarantee it will be worth more than was paid in.