Having multiple pensions may be good in terms of your financial preparations, but it does come with a considerable amount of administration. Also, spreading your investments across various pension funds means that you won’t necessarily pay the least charges on them.
There are undoubtedly good reasons for combining your pensions, two of which would be reducing such administration and guaranteeing you get the lowest charges on them all. Additionally, combining your pensions allows you to get rid of any stagnant or underperforming funds. You certainly could do much better in terms of your investment, but also, such funds may be losing you money.
How might you have several pension funds?
Many people have multiple pensions because of their work history. For several decades now, employers have been required to provide workplace pension schemes. Therefore, if you have changed employers throughout your working career, you may well have as many pensions as you’ve had jobs.
Auto-enrolment, which came into force in 2012, means that employers are now legally bound to place their employees into a workplace pension scheme automatically. The criteria for this is that they are at least 22 years old and earn a minimum of £10,000 per year.
How to find old or misplaced pensions.
The most straightforward means of finding old or missing pensions is to use the government’s pension tracing service. Alternatively, you can use an independent company that specialises in this service.
If you decide to use the government pension tracing service yourself, you may find the information you can access to be limited. Specialist companies will use the government service as a starting point also. You’ll need to provide them with some basic information regarding your past employment and personal details to get them started. Before committing to one of these independent companies, you should know what you are signing up for.
How does pension combining reduce the charges you pay?
Every pension you have comes with charges, but these will not be the same for each scheme. Some of your pension charges will be low and transparent, while others may be higher and less clear.
These differences may be slight, and you might consider them to be insignificant. However, even paying a difference of 1% in pension charges can have a significant effect over the lifetime of the pension. Combining all of your pensions into one scheme with low costs could be your best long-term approach.
Combining your pensions.
You can either choose to do this yourself or use a specialist regulated company to do it for you. They will gather all the information you need regarding your existing pension schemes, then switch these into a single personal pension plan.
You might also want to consider using an FCA-regulated financial advisor to combine your pensions. A financial advisor can offer you advice on your pensions, whereas a specialist combining company cannot do this. You should seek regulated financial advice before deciding to do so, as this will allow you to consider all the implications, check out Portafina.
Using a financial advisor to combine your pensions.
If you decide to use a financial advisor, they will gather all your pensions, under surface the advantages and disadvantages of each before you decide whether to combine them or not. Using a company that does not offer such advice will allow you to get your pensions combined, but you will receive no specialist advice.
Combining your pension merely for less administration may result in less hassle. However, you may end up paying more fees than previously.
Of course, there will likely be charges associated with using a financial advisor. However, you’re likely to end up better off in the long run. An ILC report from 2019 revealed that those who use a professional financial advisor increase the pension pots, on average, by around £30,000 over the scheme’s lifetime.
Is it possible to combine your state pension?
You are unable to combine your state pension with any other personal or workplace scheme. The state pension is a government benefit you receive when you have reached a qualifying age and meet specific criteria.