What is the best way to combine my pensions?
Research suggests that you are likely to have around 11 jobs throughout your working life. As you move from job to job you'll have to say goodbye to customers and colleagues, however one thing you'll get to keep is your company pension.
With the introduction of auto-enrolment in 2012, employers are now required (by law) to enrol all employees aged 22 or over (and who earn over £10,000 per anum) into the company pension scheme. Employees still have the choice to opt-out, meaning they no longer contribute 5% of their salary, however, they should think carefully before they do as they will be giving up the additional employer contribution of 3%.
If you regularly change jobs and contribute to your company pension each time, then you could end up with retirement savings pots with several different providers. This can mean paying several sets of management fees as well as having to manage paperwork from several different providers.
Consolidating your pensions into one pot can make managing your multiple pensions easier as it will reduce the amount of paperwork and you will only pay one set of charges. You can also keep track of which funds you are invested in, monitor performance and make changes all in one place.
Find out more information on whether you should consider combining your pensions in our guide, 'Should I combine my pensions? - What you need to know'.
Services to help you consolidate your pensions
You may have built up several pensions over the years and it can be difficult to locate the original paperwork. The good news is that you don’t need the original documents to hand in order to locate your past pensions as there are services that can not only help you locate them, they can help you to combine them as well.
One major development currently being worked on is the creation of the Pensions Dashboard. The government and industry groups are working on a tool that will let savers see details of all their pensions in one place. It was first mentioned by ministers in 2016 and was part of the October 2019 Queen’s Speech, suggesting the government is committed to it going live soon.
Trace and combine pensions using PensionBee
Fintech firm PensionBee offers a tracing service as well as a service that will consolidate your pension pots. It is a slick service that, once you give permission to PensionBee will trace, transfer and consolidate your pensions into one pot. Once your money is with PensionBee, you can choose from a range of different plans that suit your investment style.
An important aspect of consolidating your pensions is making sure you don’t get hit by exit fees or miss out on any benefits being offered by your existing plans. PensionBee promises that if it discovers that an old pension provider charges an exit fee of more than £10 or that your pension comes with special benefits or guarantees, it will ask for permission before completing the transfer. If you find yourself in this situation then you may be better off getting independent financial advice from a reputable financial planner. Check out our article '10 tips on how to find a good financial adviser'.
PensionBee does not charge for locating your pensions but once they are moved into a PensionBee account, your money will be subject to management fees, which range from 0.50% to 0.95%. PensionBee offers more than The Pension Tracing Service, which we describe below, as it offers support and feedback throughout the process as well as the ability to monitor your combined pension pots from one convenient place. For more information read our independent PensionBee Review.
Trace pensions using the Pension Tracing Service
The government offers a free tool through the Pension Tracing Service that can locate your current or former employer’s scheme provider. Using an online questionnaire, you can search for a workplace pension, personal pension or civil service, NHS or armed forces pension. You will need to know the name of the employer, any previous names it had, the type of business and when you belonged to the scheme.
Once you enter these details, the Pension Tracing Service should be able to tell you who the relevant pension scheme provider is and their address. This service has some limits as it will not tell you if you actually had a pension through the company and it can fail to return a result if you are unable to provide enough information. It is left up to you to contact them to find out if you had an account and to get access to it.
Combine pensions in a Self Invested Personal Pension (SIPP)
If you already know who your pensions are with, you could take more control of your retirement savings with a Self Invested Personal Pension (SIPP). A SIPP will let you control where your money is invested and provide an accessible way of monitoring your portfolio’s performance online. You could set up a SIPP with a DIY investment platform such as AJ Bell or Hargreaves Lansdown and then choose your own funds, shares and investment trusts to include. Check out our best buy tables for a comparison of the best SIPPs in the UK.
Alternatively, robo-advisers such as Nutmeg or MoneyFarm will let you hold risk-rated portfolios of exchange-traded funds (ETFs) and index trackers within a SIPP wrapper. Most investment platforms and robo-advisers will manage the pension transfer process for you, all you need to do is provide the details of the schemes you are transferring from and the portfolio value. Read our reviews of AJ Bell, Hargreaves Lansdown, Nutmeg and MoneyFarm to see how we rate their SIPP propositions.
Move your old pension pot to your current employer
Another option you have is moving your old pension savings into your current employer’s pension scheme. Government-backed pension scheme provider Nest, which is used by many employers for auto-enrolment, providers a transfer process, but this must be done manually by you. You can request a form to be sent in the post which you will need to forward onto your old provider. They will then provide a value and full details of your pension which can be sent onto Nest to complete the transfer. If you have had multiple pensions in the past, you will need to repeat this process which can take some time. Most providers will only allow transfers from defined contribution (DC) rather than defined benefit schemes (DB), which we explain more about below.
Do you need to use a financial adviser when combining pensions?
There are plenty of ways to consolidate your pension without the need for a financial adviser, but you do need to be aware of the risks. Consolidating your retirement pot into one easy to manage plan through an investment platform or robo-adviser may give you greater control, but it is important to understand what you are giving up in your old scheme. There may be hefty exit fees and it is important to compare the current management costs with the charges on the platform you are moving to.
A financial adviser can help you make sense of the risks involved with pension transfers as well as giving you advice on any benefits you may be losing by transferring your pension, such as Guaranteed Annuity Rates (GAR). By law, anyone transferring funds from a Defined Benefit (DB) pension, also known as a final salary scheme, into a SIPP or private pension must seek financial advice if the pot is worth more than £30,000. The same rules apply if you are in a defined contribution pension worth more than £30,000 and have a GAR.
Things to consider before consolidating your pension
Moving all your pensions into one place does sound easier as you reduce administration and can more easily monitor and manage your retirement savings. It is all very well having a more accessible experience but it is important to understand the risks of consolidating your pension.
One of the most important aspects of a pension portfolio’s performance is its fees. You can’t control what happens on the stock market but you can keep an eye and have a say in how much you are paying for your pension. It is worth checking any exit fees for leaving your current scheme and the fees that your new provider will charge to ensure it doesn’t outweigh the benefits of moving. Fees will vary across different investment platforms. Check out our article 'The best and cheapest SIPPs - low cost DIY pensions'.
You also need to be happy with how your investments are managed. You may decide to consolidate your pension in order to have more control over your pension, but make sure you are aware of the choice of funds to invest in. Some platforms may not include ETFs or investment trusts.
Are you an active or passive fund investor? Most workplace pension schemes default to a fairly cautious actively managed portfolio, but there may be an option to select your own funds or choose a tracker if you are confident about your own investment strategy.
PensionBee can consolidate your pensions into one easy-to-manage pot allowing you to invest in one of seven plans of varying risk. You can manage your pension conveniently using its smartphone app and it has a rating of 4.7 out of 5.0 from over 1,300 independent reviews on Trustpilot.
A robo-adviser may be a good solution if you are keen on taking a back seat and letting someone manage the investment decisions on your behalf. Robo-advisers use a passive fund management approach, investing in ETFs and trackers for a relatively low fee. Check out our best buy tables which compares the best robo-advisers in the UK.
Alternatively, you can actively manage your pension pot by investing in a SIPP. With a SIPP you can invest anywhere you want making your own choice of pension funds and managing them over time. You will be in sole charge of your investments and so is normally only recommended for those that understand investing and who have the time to do the research.
With the introduction of auto-enrolment, a growing number of people will inevitably end up having multiple pension pots as they move from job to job. It is pleasing therefore to see companies such as PensionBee providing a practical solution. Always ensure that any decision to consolidate is done carefully and considerately as making the wrong decision could mean you end up with considerably less come retirement.
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