6 February 2025
general
Did you know, according to the Pensions and Lifetime Savings Association, there is approximately £31.1 billion sitting in unclaimed, inactive, or lost pensions across the UK?
What’s worse, the value of those lost pensions has risen by 60% since 2018.
If you’re one of the millions with scattered pensions, you’re certainly not alone. While hunting down lost pensions could certainly be a productive first step towards affording your dream retirement, it’s important to consider what you’ll do once you find them.
If you’re thinking of consolidating smaller pots, take some time to go over the pros and cons of doing so.
There are benefits to pension consolidation, but it may not be the right choice for you. Find out what you need to know with these four important considerations.
1. Carefully consider the potential impact of charges and fees
One of the primary benefits of consolidating your pensions is the potential for lower overall fees.
Older pension plans may have higher charges compared to newer, more modern schemes. By consolidating your pensions into a single provider, you could reduce ongoing costs and increase the value of your retirement savings over time.
However, it’s crucial to carefully compare the fees associated with your existing pension plans and the costs of the consolidating provider. To get an accurate sense of your charges and fees, review your previous statements, contact your pension provider directly, or seek guidance from a financial adviser.
Keep in mind that while a new pension plan might have a higher annual management charge, you may be gaining access to valuable features, such as beneficiary drawdown options that weren’t available in your previous plans.
For example, if your existing plan only allows for a lump sum death benefit, your beneficiaries may face a significant income tax bill. A new plan with beneficiary drawdown options could provide a more tax-efficient and sustainable income stream for them.
Here, the value of advice could be crucial in helping you make a decision that’s right for you and your family. Unbiased reports that those who don’t receive financial advice tend to be £48,000 worse off than their advised counterparts, and this could reflect directly on your beneficiaries.
It’s important to note that some pension plans may also have exit fees associated with transferring your funds, which can affect the cost-effectiveness of consolidation.
2. Consider your pensions’ investment performance before making a decision
Before consolidating your pensions, take some time to review the investment performance of each of your existing plans. Some pension schemes may offer a wider range of investment options with potentially higher returns compared to others.
Transferring funds from underperforming schemes into stronger pension plans could boost your potential future gains, particularly when these compound over several years.
Keep in mind that all investments can rise and fall in value, and just because an investment appears to be underperforming now, that doesn’t mean it will continue to do so. The opposite is true, too – putting all your eggs in one gainful basket doesn’t guarantee a continuation of exemplary performance in future.
Talking with your financial planner could help you identify which pension pots are performing in productive ways, and which might benefit from consolidation.
3. Understand the potential loss of valuable benefits
Before taking any steps to consolidate your pensions, carefully consider the potential loss of valuable benefits offered by your existing schemes.
For example, if an existing scheme has death benefits, and you’re concerned about your loved ones losing access to a lump sum payment or a continuation of income after your death, it could be worth keeping it.
4. Streamline your retirement administration
Managing multiple pensions can be time-consuming, particularly if you’re receiving annual statements, pension updates, and marketing material. This can make it difficult to keep track of your cumulative pension savings, which could explain why some pension pots are left behind.
Consolidating your pensions into a single scheme could give you a clearer idea of what your entire pot looks like. Even if you consolidate into a few distinct pots, there likely won’t be as much paperwork to keep track of.
This simplification could free up valuable time and energy, but it’s important to consider your personal circumstances. If the separate pots are all performing well, and there are fees attached to consolidating them, you may find that dealing with the admin is a small price to pay for greater gains.
No matter what you choose to do, hunting down lost pensions is a crucial first step
With billions lying in lost pension pots, it may be worth investigating if you can lay claim to old pots you had forgotten about.
When it comes to retirement, a proactive approach can be highly beneficial. Finding lost or forgotten pots now means you have more time to explore consolidation options and benefit from potential growth in the years to come.
A qualified financial planner can help you delve deeper into your finances, assess your overall retirement picture, and help create a personalised plan that aligns with your goals. This could include pension consolidation, but there may be options that make more sense for your financial situation.
Get in touch
We can help you work out your retirement plans, whether you want help consolidating your pensions or need advice about your next steps.
Keep in mind that from April 2027, pensions are set to be included as part of a person’s estate for Inheritance Tax purposes, so if you’re concerned about how this may affect your family, get in touch with us.
Email enquiries@jesellars.co.uk or call 01934 875 919 to find out more about how we can help you.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.
