Nowadays, however, things are different. Most people change jobs several times in the course of their working life, so end up entering several different pension schemes. Keeping on top of it all is therefore much more complicated than it once was.
Added to that, pension funding has been through some well publicised troubled waters. The onus has passed from the employer to the individual to take charge of pension planning. According to a survey of more than 10,000 people conducted by Aviva, almost three in five (59 per cent) now worry about their finances in retirement.
Careful management of pensions is now a prudent step to ensuring we have the finances we need to live comfortably in retirement. As in any branch of investment, the key is selecting the right strategies to maximise your returns.
One very good reason to start taking an active role in managing your pensions is the huge number of forgotten pensions out there. According to government figures, there is at present £400m in unclaimed pensions savings sitting going to waste. Aviva’s survey found that almost one in eight (13 per cent) thought they had a at least one pension plan they had ‘misplaced’ – extrapolated across the whole population, that could be as many as 2.5 million pension schemes.
But the true number could be even higher, as people are not always aware of what they have forgotten.
Checking to make sure you have control of all of the existing pensions in your name is an essential first step to maximising returns from pensions. Not only are you potentially going to miss out on income, you are also risking the money you have in that pot not being used to its full potential through weak or inappropriate investment.
It is quite common nowadays for people to hold more than one pension, be it a workplace pension scheme, a personal pension, a self-invested personal pension (SIPP) or stakeholder pension (SHP).
Reasons for wanting to consolidate start at pure convenience – if you are moving jobs, it is often easier to transfer a previous workplace scheme to a new employer just so you can keep track of it, rather than risk old employer schemes being forgotten about.
However, it is wise to think about transferring or consolidating pension schemes first and foremost for financial reasons. If you look at a scheme and see it is performing very poorly in terms of returns, there is a strong incentive to move it elsewhere. Similarly, you might want to reduce the fees you are having to pay, especially over several schemes, or improve benefits such as the access to different funding streams you will get on retirement, or better death benefits.
Careful thought should be given to any move, however. As with any investment, pension pots only grow through taking a certain amount of risk. Moving to a scheme offering higher returns exposes you to greater risk. You also need to look at the big picture, including scheme benefits – public sector pensions such as those for for teachers and nurses, for example, offer perks you will not find anywhere else.
It is always strongly recommended to seek impartial, professional advice before taking any action with your pension schemes, especially if you have savings worth in excess of £30,000. As a specialist wealth management consultancy, Fiducial Wealth offers a range of pre-retirement pension and investment advisory services, bringing our expertise in financial planning to help you get the most out of your pensions. Visit www.fiduciawealth.co.uk for more information.