26th September 2016 at 8:15am
Alastair Ward explains why he brought his pensions together as part of his drive to make the most of his finances. A regular contributor to the News and MoneyPlus Blog, Alastair heads up our customer savings and employee wealth team.
Most people have several jobs throughout their lives and multiple career moves mean many of us end up with numerous pensions along the way. Recent research suggests we’ll typically have 11 jobs throughout our work lives, and younger people expect that figure to be higher.
Average person has 11 jobs throughout their working lives
That’s the reality of 21st century life. But it can make it trickier to keep on top of your finances when it comes to your pension.
Having multiple plans with different providers can make it difficult to work out exactly how your pensions are performing, consider what charges you are paying and, ultimately, whether you are saving enough for the retirement you want.
Having fewer pensions certainly saves on the admin time but the really important bit is this: as I know from my own experience, it becomes an awful lot easier to manage your savings and make sure your investments are in the right place.
And if you find out you’re not on track, it’s easier to do something about it.
Talking from experience
I managed to acquire four pensions throughout my career by the time I reached 40. The benefits of bringing them into one seemed obvious: one lot of paperwork and one provider to deal with. And I’d be able to manage my investments by seeing them in one place. Of course, I appreciated there’s no guarantee I’d get more back.
The benefits of consolidating pensions seemed obvious
The paperwork was in good order, so I was able to weigh up what each one could offer me.
I know it’s not right for everyone but, in the end, I decided to bring three of my pensions together into one new plan. I left my defined benefits company pension from a few years ago where it was.
When the time comes to take my DB pension, I know it won’t pay me much, just a couple of thousand pounds a year as a fixed amount. But I didn’t want to lose that and I think of it as a back-up for my main pension. Who knows, it could be useful for an annual holiday or help me buy something for my children, or grandchildren by that time.
Was consolidating my pensions easy? Admittedly it took a little time but doing it online meant I could do it in my own time – and I only had to do it once. Some of the questions seemed onerous, but I realise they were designed to make sure I didn’t lose out on any valuable benefits.
Consolidating your pensions can take some time
For me, the end result means the effort is definitely worth it – but it’s what happens afterwards that really matters.
Charges and performance make a difference
I have a better understanding of my charges and the value I get from these. I’ve also been able to focus on choosing and managing the investments I want in my new pension plan.
Because the reality is how your funds perform and paying a reasonable charge for them can make a big difference.
I’m not overly keen on sharing my personal finances in public (although I have covered some of it in my balanced debt diet article), so I thought it worth sharing the following example, courtesy of Which.co.uk.
Of course, returns like these aren’t guaranteed and what you get back could be higher or lower, depending on how your investments perform.
A 35-year old with a £10,000 pension pot invests it until they are 65 in a fund that achieves 5% growth, with 2% charges a year. After the 30 years, their pot could be worth £23,720.
But if that same fund achieved 7% annual investment growth and an annual charge of 1.5%, the pot could be worth £48,541. Of course this doesn’t take inflation or risk into account and the growth examples are higher than I might base my thinking on, but they illustrate the point.
That’s more than double – or almost £25,000 more. And that’s quite a difference.
The content of this article should not be regarded as financial advice. Alastair’s decision was based on his own personal circumstances.
If you’re considering consolidating your pensions, check carefully whether there any valuable benefits or guarantees which you could lose out on with your existing pensions. We strongly recommend calling on your financial adviser for guidance if you have one. My colleague Alistair Hardie previously gave some useful tips that could help with pension planning if you are planning to consolidate.
Speak to your financial advisor before consolidating
For general pension transfer advice, The Money Advice Service has useful information on making the most of your pensions.
Laws and tax rules may change in the future. Your personal circumstances also have an impact on tax treatment. As with any investment, the value of a pension can go up or down and may be worth less than what was paid in. Information correct as of September 2016.