The financial planning journal

Too many pensions? How to get organised…

4 August 2021

Two-thirds of UK adults have multiple pensions and over 20% have completely lost one of their pension pots! The majority of us will have six or seven different jobs in our lifetime, leading us to collect multiple pensions; no wonder we often lose them. The Pension Policy Institute estimates that there are over £9.7 billion of unclaimed pensions in the UK. It is typically an individual’s failure to consolidate and organise their pensions that causes this loss.

Losing a pension entirely may be on the extreme end of the spectrum, but there’s a whole host of reasons why it is so important to stay on top of your pensions and consolidate. So, how do we begin?

First step: organisation

I speak to numerous potential clients who have multiple pensions and, as a result, they often aren’t sure how much is in each, what provider they are with, or how they are invested. This lack of clarity can be unsettling. These pensions are essentially the money that’s going to provide them with what they want out of life, yet they have no grasp on how much they actually have or how it’s invested.

The problem is exacerbated when unexpected obstacles like COVID come along. If there’s economic turmoil, and you aren’t sure what money is where, it can be extremely stressful. In addition, if you want to plan effectively for retirement, knowing exactly how much you have today is the first step to working out how much more you must save. Put simply, you should be able to log on to a single pension platform and know exactly how much money you have, in one place, with ease.

Step two: investing

If you have lots of old workplace pensions, it is likely they are all invested completely differently. They won’t be taking the same level of risk and aren’t invested in line with your needs. Consolidating your pensions into one pot will allow you to gain control of how your money is invested. You can either select a fund that’s actually appropriate for you, or this can be actively managed by a professional. Making this change could literally be the difference between working into your seventies and retiring early. Don’t underestimate it.

Finally: tax management and flexibility

Keeping tabs on potential tax traps, like the lifetime allowance, can be a minefield if you have multiple pension pots. If you have all your pots in one place, it will enable you to easily keep an eye on any tax implications for your money. It’s also important to remember that (if you’re approaching retirement) most old schemes don’t have drawdown facilities, so you’ll need to consolidate them into a single pension to take your income in a controlled fashion.

Overall, there are endless reasons as to why it’s a great idea to consolidate your pension pots. However, ensure you do so with caution and take some advice. Some workplace schemes have exit penalties and protected benefits that could be lost in consolidation –  enhanced levels of tax-free cash for example. Have a financial adviser assess your pensions to ensure a consolidation won’t leave you in a difficult situation.

So, if you’ve started collecting lots of pension pots get on top of it; get consolidating and get organising before it gets out of control. You don’t want to become part of the pension loss statistic.

Arrange a financial review

Share this article: