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Advice on how to invest your pension: Combine pensions and live a luxurious retirement

Daily Express logo Daily Express 19/10/2021 Orla Loughran Hayes
Woman using laptop for finances © Getty Woman using laptop for finances

Your pension might be at the bottom of your to-do list, and you're not alone in that. The average person now has 11 jobs in their lifetime, which means that millions of old pensions have been ignored, forgotten about or lost completely.

It's staggering that there's £19.4 billion* in unclaimed, forgotten and lost pensions in the UK. The average pot is valued at around £23,000.

With figures like this, it's evident that keeping track of old pensions can be difficult.

In recent years, pensions have been modernised resulting in more competitive management fees and greater flexibility. And a simple job change or house move could mean you easily lose track of your old pension savings.

The result of this is people could be potentially missing out by not updating and combining their old pensions into one of the more modern pension schemes, something that tens of thousands of people are starting to do each month.

If ignored, these pots could be worth £39k less by the time you retire than they could be if they were looked after. So how do you make sure you don't miss out on tens of thousands, which could make all the difference to your quality of life in retirement?

What are the benefits of consolidating your pension with Profile Pensions?

You can tailor your pension to your needs

Workplace pensions are typically not tailored to the individual's needs. Employers in the UK are obliged to enrol their full-time employees into their pension scheme.

Since it's impossible to have a workplace pension that works well for everybody, it's unlikely that your pension is ideal for your particular situation. When combining them, however, you can choose a plan that works best for your needs.

Man using mobile phone © Getty Man using mobile phone

Better investment performance

If your pension is invested in poorly performing funds you could lose tens of thousands by the time you retire.

Say, for example, that you have a pension sitting somewhere worth the average £25K at the age of 40.

Assuming that you retire at the age of 67, you pay a one percent annual management charge, and your fund has a three percent annual growth rate, your pot could be worth £43k.The same pot with a five percent annual growth rate could be worth £73k.

That's £30k more without paying in a single penny more!

Family at home © Getty Family at home

Small changes in fees make a big difference

Likewise, if your pension has a high management fee you could lose thousands by the time you retire. Even 0.5 percent can make a big difference over time.

Using the previous example, let's imagine you have a pension worth an average £25K at the age of 40. If you then retire at the age of 67 and your fund has a five percent annual growth rate with a 1.5 percent annual management charge, your pot could be worth £64k. The same pot with a 1 percent annual management charge could be worth £73k.

That's £9k more with just a 0.5 percent reduction in fees!

Ease of keeping track

It's much easier to monitor how much your pension is worth and how it's performing when it's all in one pot. Nobody wants to find out they don't have as much as they thought when retiring.

Couple looking at finances © Getty Couple looking at finances

What should you be wary of?

Despite all the benefits, there are a few pitfalls you should be aware of when combining your pensions.

These are are our best tips to make sure the process is as smooth as possible, and you don't make costly mistakes along the way:

Follow this rule of thumb to avoid spending hours in customer service queues

Combining pensions is an overwhelming process. Tracing all your plans is difficult enough on its own, but what to do once you've located them? Who to contact and what paperwork will you need?

The bad news is, different pension providers have different procedures, and their customer service lines are often not very helpful either.

Grandparent with grandchild © Getty Grandparent with grandchild

Don't assume your current pension is the best one to keep

People often settle for the pension they are currently paying into for convenience, but it's not necessarily the best choice. Before making a decision, make sure you get information on all your plans. Here are the most important questions to ask:

  • How much is the annual management charge?
  • What is the fund selection available?
  • How did the fund perform in previous years?
  • Is there an exit fee?
  • Are there any guarantees or special benefits?
  • Does it give me flexible access to my pension from the age of 55 (expected to rise to 57 from 2028)?
  • If you're unsure how to make sense of these details, it's always best to speak to a financial adviser

Look out for guarantees and additional benefits you might lose

Most newer workplace pensions can be transferred on a non-advised basis. On one hand, it makes the process quicker and less costly than doing it through a financial adviser. On the other hand, you may risk losing guarantees or extra benefits upon transferring.

Especially if you have older pensions with guaranteed annuity rates or enhanced tax-free cash. Your provider should make you aware of these before transferring, but it can be easy to skip over those details if you're not well-versed in pensions.

How to get expert advice?

If you still find the process overwhelming and don't want to risk making any costly mistakes, then use Profile Pensions. It's one of the UK's most trusted independent pension advisers. With them, you can discuss your recommended pension and answer any questions you may have, free of charge.

Only if you choose to proceed would there be a small charge of one percent of the value of each policy you transfer.

You can find out more about the services Profile Pensions offers here.

Capital at risk. This does not constitute personal advice. Figures used are for illustration purposes only, and actual growth rates may be higher or lower than the figures stated.

*Association of British Insurers, May 2020 [2] Profile Pensions' Customer Better Off Analysis at 11/12/2020.

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