I will be moving from a pensionable job again for the fourth time in the past twenty years. Currently my three previous pensions are managed by the pension administrator for each of the past three companies. Is it in my best interest to combine all three into my new employer’s pension fund?
– J Easton, Wicklow
For most of us, combining old pensions into the one that’s on offer with a new job is a missed opportunity. Putting all your eggs in one basket has two major downsides. It locks up your money for longer, and imposes a one-size-fits-all structure on your pension.
There are significant benefits to having four pension pots. It puts you in control. For example, you can access each account at different times. Cracking open one pension might help you clear a mortgage at age 50, while you continue to accumulate tax-free wealth in another until age 75. Merge your old pensions with your new one, and this flexibility goes away.
But you’re right to be concerned about leaving pensions from old jobs behind. That has disadvantages too. When you leave a job, it’s often hard to obtain even basic information on your old pension – let alone control it as part of an overall retirement plan. For obvious reasons, dealing with your pension is unlikely to be at the top of your old employer’s to-do list.
That’s why many people choose to move their pension to a separate provider when they leave a job, keeping things independent of any employer, new or old.
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This brings benefits of transparency, control, and expertise.
Firstly, you can consolidate several pensions on a single platform, with a coherent investment strategy across your three pensions, and transparency on the value of your funds – as well as the costs.
You can also exercise a lot more control over how your money is invested. Many company pension schemes offer a very limited choice of investments, for example. In particular they have been slow to introduce ethical and climate-friendly investment options. The wider pensions industry has moved on and can offer much wider choice. You could use some of your old pension to invest in the electrification of transport, or to divest from fossil fuels and tobacco.
Lastly consolidating your old pensions offers the opportunity to obtain ongoing advice on your pension. Pensions are a long-term game, and what’s right for your pension today may look quite different in ten years’ time.
That said, consolidating your pensions with an independent provider isn’t always the best course. If you have a defined benefit pension scheme, which pays a set level of income in retirement, it’s almost certainly worth hanging on to. If you’ve been in a job for a short time, a refund of your contributions might make sense.
The truth is, no-one cares more about your nest-egg than you. So don’t rush to hand responsibility for your old pensions to your new employer.
This is adapted from a Moneycube column which appeared in the Sunday Times on 14 November 2021.
