It’s clear that consolidating pensions is a good strategy for many people; doing so can add significant value to their retirement savings. But when is the best time to look at pension fund transfer? You may want to transfer right away to get control of your pensions, but here are 3 specific points in time at which you might want to think about bringing all your pensions together.
#1 – When you change jobs
Recent research revealed that UK employees now work for an average of 9 different employers during their career. Potentially, that’s 9 pensions that will accumulate over time; an awful lot to review, manage and make decisions on. Very few people manage 9 different bank accounts!
Whenever you start work with a new employer, it’s worth considering how your new and old pensions fit into your overall retirement plan. Now that your past employer has stopped contributing to your fund there’s nothing to hold you back from moving. (Note: If you were fortunate enough to participate in a defined benefit scheme there may be a business case for leaving it “frozen”.)
Leaving the old pension where it is could be harder for you to keep under review.
There’s a huge spread in UK pension fund performance. Even though your fund may perform reasonably well in the years before you leave a job, the likelihood is that will not always be the case. In the worst case scenario your fund might actually fall in value, in today’s money, over time. If you’ve got a large number of pensions, identifying poor performing funds is more difficult to spot.
Not consolidating when you move jobs might mean that you even lose track of the pension altogether. It’s estimated that more than £3 billion worth assets are sitting unclaimed in over a million pension funds. Forgetting about these altogether might result in your pension being given to the government if your pension provider can’t trace you.
#2 – When you retire
Following the abolition of the so-called “death tax” personal pensions can now be used as a vehicle to pass money onto future generations very tax-efficiently. This is because pensions sit outside of your estate and are not assessed for inheritance tax.
As you approach retirement, take the opportunity to consider pension fund transfer, if you have not already done so.
Consolidating your pensions will make it much easier for your executors or power of attorney to manage your affairs when the time comes.
Managing your investments and drawdown will also be much quicker and easier for you if you’ve got all of your funds in one place.
#3 – If your current fund is underperforming
The best performing funds change over time. Fund managers leave and companies fall out of favour. You should anticipate that there may come a time when your invested funds start to underperform compared to their peers. It might be that returns start to fall, or that charges start to increase.
When this happens it’s important to make sure you quickly move your money to a new fund as every day that passes whilst you’re invested in an underperforming fund reduces the income you’ll be able to take when you retire.
As you make this move you’ll need to think about which fund to move your money to, so consider whether you want to move to a new pension provider at the same time. You might find that you have much more choice with a new provider and can access funds that better match your needs.
How to execute your pension fund transfer
Pension fund transfer isn’t something that should be taken lightly. It’s important to consider all your options before moving providers. Getting a professional to review your pension options will allow you to be confident that you’re making the best decision.
They will help you understand firstly whether a case for moving exists, and if so how and where your money would be best invested in the light of your retirement goals.
If this article raises any questions about pension fund transfer, drop a comment in the box below. I normally respond to queries within one business day.