Pension transfers – why consolidating is worth it

By Neil Hawkins, Financial Education Director

There’s one question I get asked more than any other by pension scheme members – how to move a pension and consolidate all their pension savings into one pot. It’s easy to see why; not only does it appear simpler to manage your retirement funds when they’re all in one place, it also makes it far more straightforward to see if you’re on course to meet your retirement goals.

The government has tried to communicate this through various routes – the small pots consultation and more recently the pensions dashboard development among them. It’s easy to see why: workers on average are now expected to work for at least six different employers in their lifetime.

But why should an employer care? Well, in my view helping employees to consolidate their savings can cut stress levels and help with workforce planning, as employees can actually afford to retire.

For an employee there are some potential advantages:

  • Lower annual management charges
  • Flexibility when accessing the new pension freedoms
  • More choice when investing their money
  • The option to buy and sell investments online

But there are also potential negatives:

  • By moving their pensions, employees could risk losing any benefits of their current scheme.
  • They could miss out on an option to take more than 25% of their pension as tax-free cash once they turn 55.

The value of investments can go down as well as up, so each employee should check for advice, and weigh up the pros and cons carefully, as providers aren’t legally permitted to advise. They’ll need to compare the main features of their old scheme and their current scheme, including charges, investment options, special terms and guarantees. If their pension is of a certain size, they’ll need to seek financial advice before transferring.

Consolidating your pensions may require a little effort from the member, and isn’t right for everyone, but the positives could possibly outweigh the effort involved, as well as the potential negatives.

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