Expert Pensions

Consolidating Pensions

There was a time when it was normal to stay in one job all your life but in today’s rapidly changing world, that is no longer the case.

According to research from LinkedIn, the average employee will change jobs between seven and 15 times before they retire. This means most people will accumulate several different pensions as their career progresses. Should they consolidate these various funds into one main pot?

It’s a question that financial advisors are best placed to answer but here is a brief guide to some of the reasons why combining pensions into one fund is a good idea.

CHARGES

Every pension scheme has different fees and charges. According to the Pensions Authority, a 1% annual management charge has the impact of reducing a pension fund built up over 20 years by over 10%. Consolidating various pensions will streamline such costs. You are also more likely to benefit from reduced fees with one larger fund.

CONTROL OF ASSETS

A person’s risk profile changes over the years. Your first pension, perhaps taken out in your 20s, might still be invested in high risk funds even though you are now in your 50s. One of the basic principles of investing is to gradually reduce your risk as you get older. Collecting various pensions into one pot allows you greater control over how your fund invests in various asset classes (equities, properties, bonds and cash).

EASIER TO MANAGE

It’s a lot simpler to keep track of one pension fund with one annual statement compared to several different schemes, many of them with different rules. If you’ve changed address over the years, you may have no up-to-date statements from old pensions and no idea of how much is in them or if there are any preserved benefit entitlements.

LOST BENEFITS

If a retiree has multiple pensions, it can be difficult to ensure they are receiving every benefit due to them from the various policies. You could be missing out on a generous lump sum, for example.

TRANSPARENCY

It’s a lot easier to monitor your pension fund’s performance when it’s all in the one place. This allows for greater transparency as to growth rates, fees etc

BEWARE

There are potential downsides to consolidating pensions. Some funds may charge an exit fee, for example. Also, transferring out of a DB (Defined Benefit) scheme is rarely a good idea due to their promise of a guaranteed income (unless the plan has become insolvent). Personal pensions cannot be consolidated directly into a company scheme, they must first be transferred into a PRSA. 

Before making any decisions, it’s wise to consult a financial advisor about all your retirement planning needs.

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