Blog Article

Pension savers could save over £140,000 by consolidating pension pots

Pension savers could save over £140,000 by consolidating pension pots

Date: 19 January 2021 | By: cosgrove

New analysis from Quilter has found that a person saving for a comfortable retirement could save over £140,000 by consolidating multiple pension pots into just one, representing enough for over four years of income for a comfortable retirement.

Research[1] has shown that the average person works for six different companies during their lifetime, which would mean that they also have six different pension pots thanks to auto-enrolment.

Similarly, it is estimated[2] that for someone to achieve a comfortable retirement of £33,000 a year, from age 65 to 95 you would need to accumulate a pension pot of around £500,000.

Assuming that someone has six pension pots with six different providers with around £83,300 in each that all charge different annual fees of 1.0%, 1.3%, 1.6%, 1.9%, 2.2% and 2.5%, someone could expect to have £1,076,852 after 20 years if they consolidated them all to the cheapest pot compared to £936,747 if they didn’t consolidate. This all assumes modest investment growth of 5% per year.

Ian Browne, pension expert at Quilter says:

“In times gone by someone may have got a job at a company straight out of school and worked there for the entirety of their career. This is now a rarity with most having at least 6 employers and 6 different pension pots associated with each.

“Particularly now, thanks to the success of work place pension schemes, more and more people are putting money away for their retirement but because their pension pots don’t follow them these pots can lay dormant for years with annual charges eating away at their value.

“With a huge variety of different annual charges seen across the pension industry it is essential that pension savers understand what charges they are paying and whether they can consolidate their multiple pots into the most efficient and best value one as over the long term this can make a material difference to how much they will have in retirement.

“The upcoming pensions dashboard may help users find and consolidate their pots. However, figuring out what represents the best pension pot for you isn’t solely down to fees and so it’s vital to get financial advice. There are scenarios where consolidation may not be the best course of action which is why professional financial advice is key. “

[1] Work - in numbers | AAT

[2] Home - PLSA - Retirement Living Standards

Tax treatment varies according to individual circumstances and is subject to change.

Transferring out of a final salary pension is unlikely to be in the best interests of most people.