With millions of workers holding multiple pensions, keeping on top of our retirement savings can be a chore — even for those of us who should know better.
And when a recent survey revealed one-third of UK workers feared they had lost track of a pension, it certainly struck a chord with me.
By the time I turned 30, I had managed to collect five different workplace pensions across four providers. Staying on top of the constant stream of statements and policy documents had become impossible.
Missing pots: A recent survey revealed one-third of UK workers feared they had lost track of a pension
Then I started seeing adverts for pension consolidation services almost every time I took a train. It was as though someone upstairs was trying to send me a message (admittedly a rather dull one).
Two years ago, I decided enough was enough. I was going to take charge once and for all to get things under control.
Industry data shows I was far from alone, with tens of thousands of people each year choosing to consolidate disparate pots.
This has triggered a DIY pension boom. Just look at PensionBee, which has gone from plucky pension start-up to managing more than £2.6 billion of savers’ cash.
It isn’t hard to see the attraction of moving all those savings into a single pot you can actually keep track of. But does it always make sense financially?
Pension experts at Lane Clark & Peacock (LCP) have been investigating this exact question. Their answer: it depends.
‘Despite the attractions of pension consolidation, it is important to look before you leap,’ says Sir Steve Webb — the former pensions minister and now LCP partner.
For a start, transferring out of any pension means giving up any conditions or perks included within the scheme.
This is a particular concern for older savers, who may still hold pensions offering a better guaranteed annuity rate — the yearly income you can purchase with your pension pot at retirement.
Other complications include higher exit charges and giving up tax perks (some older pensions let you take more than 25 per cent tax-free).
It’s why experts typically recommend that older savers — particularly those with larger pots — speak to an adviser before consolidating.
Those with larger pots approaching their lifetime allowance should also be wary. This is the amount you can amass without paying more tax, currently £1.073 million.
But if you have three smaller pots of less than £10,000 they do not count towards your limit so it could be worth keeping them separate.
Advice: Experts typically recommend that older savers — particularly those with larger pots — speak to an adviser before consolidating
As someone who took out their first pension in 2010, I’d missed out on any special perks and was a long way off the lifetime limit.
Yet even then I still needed to crunch the numbers. Pension consolidation firms make much of their low fees, which they say are significantly below industry average. For example, PensionBee’s popular ‘tracker’ portfolio charges just 0.5 per cent.
When your money is being invested for decades on end, even a small saving — say 0.1 per cent — can easily add up to thousands of pounds over the years.
Using the industry average doesn’t always tell the full story, with LCP’s research finding newer pensions typically charge lower rates. In my case, charges varied from 0.4 per cent (for a very cautious mixed asset fund) up to 0.9 per cent.
But my digging turned up something interesting: PensionBee wasn’t the best-value option.
Instead that honour went to the U.S. investment giant Vanguard, which lets you hold its ultra low-cost funds (including its popular LifeStrategy range) in a self-invested personal pension, or Sipp. It also offers a larger choice of investment options
I had been concerned some of my investments were too cautious. An older colleague had told me of their regret about not switching from their provider’s default plan, missing out on decades of stock-market growth as a result.
Indeed most of my pension cash was invested in the Columbia Threadneedle Multi-Asset Fund — a defensive fund better suited to someone nearer retirement.
I also had a large sum in Aviva’s My Future Focus Growth fund which — while more ambitious than a multi-asset fund — is nearly twice as expensive as Vanguard’s equivalents.
With even a relatively modest £20,000 in the fund now, the eventual difference over the next 30 years could easily run to £7,000 (assuming 5 pc annual growth).
Making the transfer itself wasn’t difficult, with Vanguard taking on all the admin once I’d provided them with my policy numbers and basic details.
Some savers may feel nervous about putting all of their pension cash into one place — something LCP’s research identified.
But Sir Steve says that these more modern, diversified pensions are actually often less risky than older options, which are sometimes skewed towards UK shares.
Tracker pots such as PensionBee and Nutmeg are designed to follow broad stock-market indices.
Of course, no investment is without risk. But this approach has consistently proved its worth over decades.
In short, consolidating can help some savers cut their costs and improve their pensions, giving them a larger pot in the long run — but only if it fits with their personal circumstances.
In my case, it’s helped me slash paperwork, cut my pension costs, and replace laggard funds with (hopefully) better alternatives.
So far, so good, then. Just another 30 years until I can say for sure.
