Latest data from the Office for National Statistics (ONS) shows a major increase in the number of dormant pension pots, making the case for the mooted pensions dashboard even stronger.
The recent ONS Occupational Pension Schemes Survey showed there were 18m dormant pensions in 2018, up from 15.8m in 2017, representing old workplace pensions to which a saver no longer contributes. The increase occurred mainly in the private sector, where dormant pots increased from 11.6m to 13.6m, with a smaller increase in the public sector (4.3m to 4.4m).
Aviva has also found that the number of dormant pensions has risen by more than 80 per cent since auto-enrolment was introduced in 2012.
This certainly strengthens the case for the much discussed pensions dashboard. However, another approach for many would be to consider pensions consolidation.
Most people work for a good number of companies during their career, with research showing that the average Brit will have 11 different jobs throughout their working life. This means some will have accumulated a range of different pensions from previous employers, resulting in a collection of small pension pots. Having several different pension pots is not usually the most efficient way to manage your retirement savings, so consolidating them into one single pension pot often makes sense.
The benefits of pension consolidation include;
- Helping you to keep track of your pension savings
- Managing your pension savings more easily
- Potentially saving money from old style higher-cost schemes
- Usually providing a greater choice of investment options
- Improved flexibility emanating from the arrival of Pension Freedoms in 2015
It is certainly simpler to manage your pensions if they are all in one place. Paperwork and administration will be reduced, you will have a clearer picture of whether you are on track to meet your retirement goals and it will make things easier and more flexible for when you decide to access your pension.
Obviously, if you are considering consolidating your pensions, you should probably get professional independent financial advice and we at Kellands would be glad to help.
Whilst it usually makes sense to consolidate, there are some things you need to check out first, for example whether you may lose any benefits tied to your old pension schemes.
If you have a defined benefit pension scheme (final salary scheme) or if you have any pensions with guaranteed annuity rates, or with guaranteed minimum pension benefits, then you should check what will happen to these guarantees if you transfer your pension.
It is also worth checking if there are any exit charges associated with switching your pension. Exit charges can apply on older pensions, whilst if your old pension is in a ‘with-profits’ fund, any exit penalty may take the form of a Market Value Reduction (MVR). However, even if there are exit fees, it may still make sense to consolidate your pensions, as the new terms may offset the amount you lose, particularly if you still have a long time to go until retirement.
At Kellands, we can help you assess whether you should consolidate all or some of your pension pots, and help you understand the benefits as well as any possible costs and risks involved.
For more information, contact Kellands today.