Benefits of pension consolidation
The potential benefits of consolidating all your pension plans are summarised below, but please bear in mind that these may not apply to everyone – you should read the issues to consider and take advice if you are at all unsure.
Easier to control and manage - bringing all your pension plans together will make your retirement savings easier to monitor and manage, as all your investments will then be in one place. This should reduce the amount of time and paperwork needed to administer your pension savings.
Checking you are on track – having only 1 plan makes it easier to find out the total value of your investments and whether the plan is on track to provide you with the level of pension you want on retirement.
Consistent investment approach – you can switch out of any pension plans that are too inflexible or inappropriate to your needs, leaving you with one plan with the flexibility, charging structure and investment options that meet your own circumstances and approach to investment.
Wider choice of investments – some pension plans can offer a restrictive range of investments, perhaps making it impossible for you to include derivatives or structured products, which can protect against market movements. However, consolidating your plans into a Self Invested Personal Pension (SIPP) can widen your investment choices - allowing you to hold a comprehensive range of investments such as stocks & shares, gilts & bonds, Exchange traded funds (ETFs), Exchange traded commodities (ETCs) and structured products. This can make a big difference in helping you to manage risk better.
Lower costs – consolidating your pension plans can cut costs significantly. For instance, you will only be paying one set of management charges, rather than separate charges for each plan, and transaction costs should be lower with one portfolio rather than several. Consolidating older pension plans into newer plans can reduce costs as newer pension contracts tend to be cheaper like-for-like than older plans, due to competition for business.
Managing risk – by keeping all your retirement savings in one plan it is simpler to see how your savings have been invested and to assess your overall risk position given your asset mix and investment strategy. It is also easier to adjust your asset mix to increase or lower your risk position according to the level of risk you are comfortable with at your stage of life.
Investing across a range of investments or types of assets (diversification) tends to be an important factor in minimising the risk of your portfolio. While personal pensions can provide a good degree of diversification, investing in a SIPP usually lets you diversify your portfolio from a wider range of investments so that you can maximise the benefits of diversification.