You’ve done the hard bit - despite a busy career, debts to clear and a housing ladder to climb, you’ve been managing to put something aside for retirement as well.
By starting your pension saving early in your working life, you’ve given yourself plenty of time to let investment returns build before you eventually retire. Unfortunately, if you want to maximise what you’ve saved, your work is not quite done. You’ll need to up your contributions when you can and take smart risks with your money to give your pot the chance to grow.
That’s not always easy because your ‘pension’ is not really one pot of money - it’s likely to be several smaller pots, particularly if you have changed employer over the years. Your retirement fund could be spread across many schemes - and you may not even know how or where to find them again.
It’s a common situation. Your money is still safe inside old pensions and you will be able to track them down eventually, but having little or no visibility of how they are invested, or the cost of doing so, can be a problem.
You probably won’t know how much you’ve got in each one - so you can’t know for sure whether you’re on track to meet your savings target - but you also won’t know how they are invested. There is a risk that your money is not sufficiently ‘diversified’ across assets to protect them from heavy falls in one market, country or sector.
The chances are that your money will be in the ‘default’ fund option that every scheme offers. These days that’s likely to mean large ‘vanilla’ funds which invest across both shares and safer bonds - but there can still be big differences in how each default fund splits your money and such differences will have a big impact to your return in the long term. Both approaches can be correct - but they might not suit you.
What’s more, you’ll only know if a pension pot is invested correctly if you know how all your other pots are invested as well. A riskier approach in one pot might be fine if you’re being cautious elsewhere- but it’s hard to know that when you have pots in several places with little oversight from month to month.
The problem can get more acute as you get close to retirement because you may wish to move your money into safer assets that have less chance of sudden falls in value.
It’s why more and more people are choosing to consolidate all of their pensions together in one place - a self-invested personal pensions (SIPP) - with a single online account to show what you have saved, and where.
Is consolidating right for you?
As well as the ease of viewing and managing your pension money, cost should be another consideration. There will always be some kind of charge for investing your pension money and this will influence the level of your pension fund over time.
A SIPP might cost you more or less than your old pension schemes, so it’s important to consider the charges you’re paying on your old funds and compare this to the charges if they are held in one place. Once you know the costs you can decide whether you will get value by consolidating.
Make sure that you check the details of you old schemes before you give them up. An old scheme might allow you to take your money earlier, for example, or will perhaps allow you to buy a higher income in the future via a ‘Guaranteed Annuity Rate’. If an old scheme includes such features, consider whether you will lose out by giving them up.
If you decide to consolidate your pensions inside a SIPP, it’s likely you’ll have a far greater choice of investments. That can be a great thing - but also off-putting if you’ve never taken active investment decisions before.
Fidelity Personal Investing offers solutions for investors at every level of experience. Fidelity’s PathFinder tool can help you choose ready-made funds based on your selected risk level, so that your pension is invested in a mix of assets that is maintained over time. Simply answer a few simple questions to find out which best suits you.
For the more confident, there are expert-recommended funds, including many low-cost options, and a full universe of funds and individual shares.
Plus, if you apply to apply to transfer by 17 September you’ll be rewarded with £50 to £1,000 cashback. Exclusions & T&Cs apply.
|Tom Stevenson’s Investment Outlook webcast – 10 July 2019 at 12pm|
|This Wednesday, Tom Stevenson will be giving his outlook on world markets in a lunchtime webcast.
Login here to watch it live at 12pm on 10 July 2019.
The value of investments and the income from them can go down as well as up so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.