Workers nowadays have, on average, 11 jobs during their working lives. So, it is not uncommon to have built up numerous pensions, which are easy to lose track of overtime.
Some might be “Defined Benefit”, also known as Final Salary schemes, which promise a certain level of pension from retirement age, while others – increasingly these days – are “Defined Contribution” or Money Purchase schemes, where the employer puts a set amount of your salary in, but with no guarantee as to what you will get out of them
For many people, their pensions are their largest single asset after their home, so it makes sense to look after them as carefully as they would their property.
So, is it worth consolidating them? Here are a few reasons for considering.
Most people – although, surprisingly, not all – know the name of their pension companies – some people know the underlying charges associated with their pensions, yet few people know how their pensions are performing.
However, investment returns are the biggest determinant of what your pension will be worth at retirement. The vast majority of pensions we see are invested in the default funds – simply because of inertia or lack of investment knowledge. However, many pensions also have other funds available.
Poor investment performance can happen for a variety of reasons. In older pension plans, you may be limited to a particular “managed” pension fund run by the pension provider, which is often not well run or very actively managed. In other pensions, there may be a better choice of funds, but it may still be limited – “Stakeholder” pension plans often fall into this category.
Some pensions have better investment options than others, so consolidating can take advantage of this and reduce the risk of languishing in underperforming funds.
It may also simply be down to your original choice of investment funds which needs reviewing and updating for today’s investment environment. Often the original reason for investing has gone, yet the investments are still held in funds that are past their sell-by date.
Charges are the next most important reason for considering a move. Pension plans have changed significantly in the past few years, with the cost of pensions reducing substantially – but only if you are invested in the right one.
It is not always easy to find all the information on the costs of a particular pension plan – however, with our comprehensive Reconnaissance Survey, we are able to dig down and find out exactly what you are being charged.
Making Life Easier
Consolidation makes the ongoing administration easier by not having to deal with so many pension plan providers – for example, changes of address and dealing with the annual paperwork. It also means that it is easier to get a full picture of your investments and how they are performing overall.
Pension freedom rules have also improved the flexibility regarding taking income from your pension. However, only the most modern pensions are able to take full advantage of this – allowing you to take the income you need at the time you want it, with the most advantageous tax treatment.
The most important thing is to not lose touch with your pensions. Although the Government offers a Pension Tracing Service, waiting to find your pension until you near retirement age is not a good strategy, as you will have foregone so much potential along the way.
Pensions are a complex area, and good quality financial advice is required to make sure that you achieve the best outcome. At Foresight, we have highly qualified Wealth Strategists using the Quantum Programme to help clients achieve the best outcomes in their retirement.
If you, or anyone else you know, would benefit from a chat about their pensions, then please get in touch.