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Planning for the future as a contractor or freelancer isn’t always easy. From managing your own pension contributions to organising your different pots, it can feel like an uphill task. But can consolidating your pensions make things easier? Here’s everything you need to know.
Through your work for different clients, you’ll likely have accumulated plenty of pension savings, from workplace schemes to personal ones. While saving for the future is always a good idea, having your funds spread out across multiple schemes can quickly become difficult to manage and increases the risk of forgetting about where your hard-earned money is.
For many, consolidating your pensions makes things easier. Pension consolidation means taking the majority, or all, of your pensions and transferring them into a single pot. And, as well as making your money easier to manage, consolidation can also help your savings grow faster than before – especially if you have a pension scheme that offers you excellent rates of return.
But consolidation might not be right for you and risks you giving up certain rewards and perks. If you’re thinking about how to better manage your pensions, here’s your guide to pension consolidation.
The first step to figuring out your pension planning is locating and taking stock of all your different pension schemes. While it might sound an obvious point, millions of pounds’ worth of pensions are lost or forgotten every year in the UK, so take the time to trace your pension funds and the pension providers they are associated with.
On top of any personal and private pensions you make your own contributions too, you should also be sure to double check any workplace pension schemes you may have been enrolled in. This will depend on the specifics of your contract and how long you have worked for a particular company. You will need to make secure you have the details of these different schemes from employers in order to trace them.
Consolidating your pensions means pulling all your existing schemes together into a single pot. So, instead of keeping an eye on lots of different pots, you will only need to focus on a single pot. And, if you have a pension scheme that offers particularly good perks and return rates, consolidating can be beneficial for your savings, too.
Consolidating your pensions also means cutting down on the management fees that pensions providers charge. While management fees are typically only around one 1%, by maintaining multiple different pensions, you will be paying lots of different pension providers’ fees.
Consolidating your pension is normally a good idea, but this isn’t to say that there aren’t catches. Transferring your pensions often comes with a transfer fee. These fees are normally only 1% or 2%, but in some extreme cases, can be as high as 10%.
You should also be careful that consolidating doesn’t void some of the perks and benefits you’ve accumulated in your existing schemes. Whether you’ve earned financial or non-financial perks, these could be lost when you transfer out.
If you’ve decided to consolidate, the good news is that the process is quite straightforward, as long as you have prepared well and have access to key information that can help the transfer proceed smoothly.
If you’re transferring out of a workplace scheme, you should receive from your pension administrator:
• a document setting out the value of your pension
• details of any perks and benefits you have earned
• details of exit charges
• information about your next pension scheme, such as the new pension number.
The amount of time it takes to transfer your pensions across can vary from a few weeks to months. While your pensions are being transferred, the value of your pension investments may be frozen, potentially protecting you if its value decreases, but also meaning you won’t benefit from any increases in value too. The more prepared you are, the better your chances of ensuring a smooth and timely transfer that helps you consolidate your pensions quickly.
Our experts can help you plan for your financial future. From accountancy services to financial advice and exploring your self-employed or umbrella employment options, speak to our partners today.
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