🎓 Pensions Academy Lesson 8
More people today are enrolled in a workplace pension scheme than ever before. This is because of auto-enrolment, which was introduced in 2012 and requires all firms to set up a workplace pension and enrol their employees into it, unless they choose to opt out.
Whilst auto-enrolment has been a huge step forward for the industry, the government estimates that people will have 11 different jobs during their working lives, and with every new job comes another new pension.
The Association of British Insurers (ABI) estimates that more than 1.6 million pension pots worth £19.4bn are “lost” – the equivalent of £13,000 per plan. 😲 In thirty years’ time, this could be as many as 50 million pots forgotten by people changing jobs, according to the government.
Here’s why it could be worthwhile to bring together your old pension pots.
1. It’s easy to do
It’s pretty straightforward to transfer your old pension to another provider. On average, online transfers take around 2-3 weeks to complete. Traditional pension providers could definitely make the transfer process easier (as some still use manual processes such as paper forms) but at Moneybox, we’re committed to making it as easy as possible to bring together your old pension pots and will do as much of the heavy lifting as we can. 💪
All we need to get your transfer started is the name of your old provider and your policy number. Don’t have these to hand? Don’t worry – we can help track them down. 🔎
With our in-app Pension Provider Search Tool, all you need to do is share the name of your old employer and the years you worked there and you’ll see your search results of your pension provider – instantly! We have one of the largest databases in the UK with over 20,000 pension providers. If we can’t immediately provide the details of your old provider, our team of Pension Detectives will get to work searching for your pension providers and within a few working days, we’ll be in touch with your search results. 🕵️
Once these details are confirmed, we can start the transfer process – and you can track the progress of your transfer any time from within the Moneybox app.
Check out more details about our Personal Pension.
2. You may get more choice in where your pension is invested
The range of investment options in legacy workplace pensions may be more limited than a personal pension, where you can choose how you want your money to be invested. For example, with a personal pension you may be able to select a provider that offers access to socially responsible funds, allowing you to choose investments that are more aligned to your values. 🌍
3. Account management is easier with fewer pots
Having to remember one login is always going to be better than remembering eleven! Managing multiple pensions can be hard, especially considering traditional providers don’t always keep you in the loop about how your pension is performing (or even where it’s invested!). By bringing together your old pensions, you can say goodbye to those letters to your old addresses and keep track of your retirement savings easily. 📲
4. You could save on fees
Pension pots potentially have decades to grow. This is brilliant for potential returns because they benefit from compounding, where, as a reminder – you not only get returns on your original investment, but returns on your returns. However, it’s a double-edged sword: compounding also applies to fees. ⚔️ So, the higher the annual charges, the greater the long-term cost to your pension.
When you leave a job, employer contributions will stop and you’ll continue to be charged fees as the provider is still managing your money. 🏦 What you pay in fees is based on what you have in your pension, rather than what you’re paying in. If you’re being charged over the odds, it can have a significant impact on your final retirement savings.
5. It’s OK to rely on one pension provider
You may be thinking: “I’ve heard diversification is a good thing – so surely having more pension pots is better?”. When we talk about diversification, we’re referring to the assets within pensions – not the number of pots you have. Yes, your individual pots should be invested in lots of places (e.g. different regions or industries) to spread risk and help best protect your money from market volatility. 🛡️ However, this isn’t achieved simply by having more pensions. In fact, it’s possible you could end up investing in the same fund via different platforms or pension providers.
When shouldn’t you transfer a pension?
While transferring and consolidating your pensions can be beneficial, there are times where it might not be a good idea.
If you have a Defined Benefit pension
These schemes are linked to your salary and the years you worked for an employer – and they are usually very valuable. In fact, if you have this type of pension with a value over £30,000 you are required to get independent financial advice before transferring it to ensure you make the right decision for you.
If you have high exit fees to transfer your pension
While exit fees are rare nowadays (the government has made some moves to prevent them), if they do apply to your pension, they could significantly reduce the value of your pension fund. If you’re looking to transfer your pension to Moneybox, where we have the information from your old provider, we’ll check with you before starting a transfer which has an exit fee – but sadly not all of them tell us, so it’s best to do your research.
If you have special benefits
Some pensions (often defined benefit) come with special benefits, for example, a guaranteed annuity rate. Or some rare schemes allow you to draw more than the usual 25% tax free lump sum at age 55. These can be valuable benefits and losing them might outweigh the benefits of moving your pots. If you’re unsure, you should consider getting some independent financial advice.
For many, consolidating your old pensions can offer more control, better fees and peace of mind. Find out more about how the Moneybox Pension works in Lesson 10.
🎓 You’re on the home stretch! Next up in Lesson 9, we take you through what you need to know about accessing your pension at retirement.
When deciding whether to transfer your pension, it’s important to compare the charges and benefits between Moneybox and your old provider, and whether the risk and reward profile of the investments we offer matches your needs. As with all investing, the value of your pension can go up and down, and you may get back less than you invest. We do not currently offer drawdown products (for the Moneybox Pension). If you’re not sure whether the Moneybox Pension is right for you, a suitably qualified financial adviser can help you decide. Moneybox Personal Pension T&Cs Apply.