Should you consolidate your pension?

Should you consolidate your pension?

Jan 04, 2023

Workwell News

Consolidating your pensions could help make planning for retirement much easier. From personal pensions to workplace pension schemes, here’s how combining your pensions into one single pot can work for you.

Guest blog by Contractor Wealth, part of the CMME group.

For many, running your own business is one of the most rewarding ways to work. But, when it comes to planning for the future, self-employment can sometimes pose additional complexities. From organising your own pension contributions to having savings tied up with different employers, understanding your pension and thinking about retirement can be tricky.

That’s why many independent professionals and business owners choose to consolidate their pensions into a single pot. Not only does this make pension planning easier, but it can also be good for your savings growth, too.

But how do you consolidate your pensions and is it right for you? Here’s your guide to pension consolidation as an independent contractor or freelancer.

Pension consolidation explained

If you have various pensions pots linked to different workplace pension schemes through contracts you’ve taken on, it might be time to consolidate your pensions into a single pot. You might have your own private pension scheme too and with these savings tied up in different places, it isn’t always easy to keep track of them and understand how your financial future might look.

Consolidating means taking the majority, or all, of your pension savings and moving them into a single pot. It’s a straightforward process and often offers better returns.
Why should I consolidate my pensions?

Accurate pension planning means keeping a close eye on your pensions, and understanding how they can grow over time to support your retirement goals. As an independent professional though, this can be easier said than done.

Consolidation brings your pensions into a single pot, making it easier to manage. And, with the majority of your savings in one scheme, you can move your lower-performing pots into higher-earning pots, improving your returns in the process.

At the same time, you’ll be cutting on the fees and charges you pay to third parties to manage your savings. If you have five pensions, and are charged 1% in management fees for each pot, you could be paying out much more money than you need to.

Why NOT consolidate?

There are some pension pots worth keeping hold of. Specifically, if you have a defined benefit, or final salary pension, or a scheme that comes with a guaranteed annuity that will deliver you a fixed income when you retire, you should be careful not to consolidate these pensions as you will forfeit these benefits.

Even if you don’t have these pensions, you should be careful not to miss out on non-financial perks and rewards you may have accumulated with your current pension providers. These could well be voided when you consolidate.

You should also keep an eye on any charges and fees associated with transferring your funds. In most cases, these charges are small and equate to 1 or 2%, but this figure can be higher in some cases.

Is consolidating pensions right for me?

Only you can decide whether consolidating is in your best interest. As a general rule, consolidation makes managing your pensions easier. And it can be financially beneficial if you decide to transfer your outstanding pensions into a pot with better returns and cut down on third-party fees.

Most of the time, consolidating your pensions is a good idea. But this isn’t to say that there aren’t drawbacks. Make sure that you won’t be losing out on any benefits or rewards associated with any of your pension schemes, and that you’re aware of any charges associated with transferring.

How do you consolidate pensions?

Transferring your pensions to a new pot is a simple process, as long as you have the right information. Make sure you have records of the values of your different pensions, the new account number your existing pensions will be transferred to, and any details about exit charges and fees. An appointed independent professional can do some of the leg work for you in this area and if you are unsure you should seek advice. With all this in mind, your consolidation should only take a matter of weeks.


About Contractor Wealth

Contractor Wealth, part of the CMME group, is a partner of Workwell delivering bespoke personal finance support.  Find out more about their services or get in touch with their expert team for a free initial consultation.

The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested. Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate on Estate Planning.

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