Perks of a melting pot
THE AVERAGE worker ends up with around eight different pension plans over the course of their career, and it is all too easy to lose track of the paperwork.
It can also be costly, as some of these lost plans could be worth more than you think, especially those set up in the early years as they have had longer to grow.
Two in five savers lose track of at least one of their company and personal pensions, as well as tax-free Isas and savings accounts, according to new research from wealth manager Netwealth.
The average loss is a substantial £30,000 that could be a huge boost amid the cost-of-living crisis, said Netwealth founder Charlotte Ransom: “That kind of money could have a transformative impact for their rightful owners.”
Pulling together all of your pensions and other savings can give you a much clearer idea of where you stand. Ransom added: “It also makes it much easier to do retirement and inheritance planning.”
Savers with multiple pension pots could reduce the risk of several underperforming or going astray, by consolidating them into a single pot, said Pete Hykin, chief executive at private pension provider Penfold: “It makes it easier to manage your money by reducing the number of accounts you monitor.”
Consolidating your pension puts you in
charge of where your money is invested, rather than simply relying on your provider’s default strategy, Hykin said.
“This can help you create a more coherent investment plan in line with your preferred risk level, growth potential and time horizon,” he added.
Having a single pension pot also makes it simpler to access your savings when approaching retirement age, whether through drawdown or an annuity.
Yet there are dangers to consolidating. Some pension plans may offer unique benefits or guarantees that would be lost.
If you have a plan that offers valuable benefits, such as guaranteed lifetime income or survivor benefits, consolidating that may not be wise, Hykin added.
Some pre-2006 company pensions allow members to take more than the maximum 25 per cent tax-free cash entitlement that applies to most pensions.
Older-style pensions may also have high exit fees, which can wipe out the benefits of consolidation, so again, check.
Remember there is no guarantee that your consolidated pensions will perform better than your old ones.
Hykin said pension consolidation is a personal decision, and will depend on factors such as the number of pensions you have, where the money is, how high the fees are and performance.
“Yet consolidation can help you cut management fees and potentially save a fortune in charges,” said Damien Fahy, founder of Moneytothemasses.com.
A popular option among savers who are happy to manage their own pension funds is to set up a self-invested personal pension (SIPP). These are offered by providers such as AJ Bell, Bestinvest, Charles Stanley Direct, Fidelity, Halifax, Hargreaves Lansdown, Interactive Investor or Vanguard.
Many offer competitive charges said Fahy, which means you get to keep more of your investment returns to yourself.
When comparing, remember to include monthly or annual platform fees, trading charges, underlying investment fund fees and potential exit fees. Fahy says Fidelity, Hargreaves Lansdown andvanguard are among the best value SIPP platforms.
Fidelity and Hargreaves offer a full choice of thousands of shares and funds, whereasvanguard has a more limited choice of its own trackers.
Website Comparetheplatform.com could help you decide which charging structure works best for you. If unsure, consider taking independent advice.