Many people in the UK have multiple pensions, often due to switching jobs over the years. In fact, research shows that two-thirds of adults have more than one pension, and over 20% have completely lost track of at least one of their pension pots. With most individuals having six or seven jobs in their lifetime, it’s easy to see how multiple pensions can quickly get disorganized, leading to lost funds. According to the Pension Policy Institute, over £9.7 billion in unclaimed pensions are currently sitting in the UK, often because people fail to consolidate and manage them properly.
While completely losing track of a pension is extreme, it highlights the importance of staying on top of your pensions. So, what steps can you take to get organized?
Step 1: Get Organized
One of the first things I recommend to clients with multiple pensions is to organize and consolidate them. Many people don’t even know how much they have in each pension, which provider manages them, or where their money is invested. This lack of clarity can be unsettling, especially since these pensions are the key to achieving your financial goals in retirement. Without a clear picture of what you have, it’s difficult to plan effectively for the future.
The problem becomes even more stressful during times of economic uncertainty. For example, when a financial crisis or global event like COVID-19 occurs, not knowing where your money is can add unnecessary anxiety. The first step to overcoming this is simple: you should be able to log into a single platform to see all your pension information in one place, making it much easier to plan for the future.
Step 2: Review Your Investments
If you have several old workplace pensions, it’s likely they’re all invested in different ways, with varying levels of risk. These pensions may not align with your current financial goals, and some might not be as effective as others in terms of growing your money. Consolidating your pensions into one pot allows you to take control of how your funds are invested. You can choose a fund that suits your needs, or you can have the money actively managed by a professional. The right investment strategy could significantly impact your retirement plans—potentially helping you retire earlier or avoid working longer than necessary.
Step 3: Tax Efficiency and Flexibility
Managing your pensions in one place also simplifies tax management. If you have multiple pots, it can be challenging to keep track of tax limits, such as the lifetime allowance, which can result in unwanted tax charges. Consolidating your pensions helps you manage these potential tax pitfalls more effectively.
Additionally, if you’re nearing retirement, many older pension schemes don’t offer drawdown facilities, which are essential for taking income in a controlled way. By consolidating your pensions, you can ensure that you have the flexibility to access your money in retirement, without any surprises or restrictions.
Consult a Financial Adviser
While consolidating your pensions makes sense for many people, it’s important to do so cautiously. Some workplace pension schemes may have exit penalties or protected benefits, such as enhanced levels of tax-free cash, that could be lost during consolidation. To avoid this, it’s wise to have a financial adviser assess your pension pots and help you determine the best course of action. They can guide you on the potential risks and ensure that consolidating your pensions won’t put you in a worse financial position.
In conclusion, organizing and consolidating your pensions is an essential step towards securing your retirement. The more you understand about your pensions and their investments, the better prepared you’ll be for the future. Don’t let your pension pots get out of control—start consolidating and organizing today to avoid becoming part of the unclaimed pensions statistic.
