If you have multiple pension plans, that’s great news for your retirement. However, you may want to consider combining them, as doing so could be even better for you.
Combining multiple pensions into a single scheme reduces the amount of administration, so it is less hassle for you. Perhaps more appealing is that you could end up paying lower charges, which means your pension pot could achieve more significant growth.
Furthermore, combining pensions enables you to eradicate any underperforming or stagnant pension plans. At best, such pensions will be achieving new growth. However, high charges and underperformance could be eroding your retirement savings. If your financial future is important to you, it is highly recommended you engage with a financial advisor (such as Portafina) before making any decisions.
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Do you have more than one pension?
You may not be able to answer this question, and many people cannot. However, having more than one pension is quite common.
If you have had more than one employer throughout your career, you could have as many pension plans in place. That’s because, for several decades, employers have been offering workplace pension schemes.
Moreover, since 2012, employees have been legally obliged to provide a workplace pension and automatically enroll qualifying employees into that scheme. To be eligible for auto-enrolment, you must be over 22 and earn in excess of £10,000 annually. Therefore, you could have several pensions from previous jobs unless you have opted out of such schemes.
How can you find out about old pensions?
If you think you may have some or pensions you have lost track of, you have two ways of tracing them:
- The government’s pension tracing service is available on the gov.uk website.
- Use an independent pension tracing company.
Although the government pension tracing service is straightforward and simple to use, there are limits on the information you can get. Also, you may not have time to track down all pensions, so you may choose to use the other option.
Using a specialist pension tracing company may be more convenient. However, before using one of these companies, you should understand precisely what you are committing to signing up to.
How can combining your pensions reduce your charges?
Every one of your pensions has a set of charges. However, these charges aren’t always the same, and some are more transparent than others.
For instance, you could have two identical pension schemes provided by two different companies. One company may charge 0.5% per year to manage your scheme, and the other just 1%.
You may think that a half percent difference is insignificant. However, over the lifetime of your pension scheme, this could cost you a significant amount of your pension scheme’s value. Combining your pensions into a scheme with lower charges can make a massive difference to your pension pot.
How to combine your pensions?
In certain situations, you may be able to combine pensions yourself. If you don’t feel like doing this or perhaps find dealing with pensions challenging, you could use the services of a regulated pension combining company.
These companies will get all the information they need from you about your existing pension schemes and switch to a new one more suited to your situation. There is also a strong case for using an FCA-regulated financial advisor to combine your pensions for you.
Why should you use a financial advisor for pension combining?
The specialist companies we’ve just mentioned can combine your pensions, but that is all they will do. They will not look at your plans and assess the value or advantages.
When you use a financial advisor to combine your pensions, they will also look at your pensions first and help you decide whether combining them is your best option. Pension combining companies do not offer this service, so when they combine your pension, the only benefit you might receive is less administration.
Combining your pensions solely based on reducing an administration amount is not an ideal move. That’s because you could be losing significant benefits by combining some pensions into a single plan.
Of course, there is likely to be a financial cost when you use a financial advisor. However, you should not let this concern you as you could be better off in the long run. A study from 2019 released by the ILC-UK demonstrated that people who received independent financial advice increased the value of the pension pots by an average of over £30,000.
Can you combine the state pension with private pension schemes?
Unfortunately, you cannot combine the state pension with your private pension schemes. That’s because the State Pension is a benefit paid by the government when you reach a set age and have paid the required amount of National Insurance contributions.