People are living longer than ever before, and as a result, the number of people who are retired is on the rise. In order to make sure that you have enough money to live comfortably during your retirement, it's important to start planning for it now. So should I put all my pensions together? This is one option that many pre-retirees consider. This can be a good idea or a bad idea, depending on your unique situation. In this blog post, we will discuss the pros and cons of putting all your pensions together and help you decide what's best for you!
What are pensions good for and why should I contribute to them?
A pension is one of the most tax efficient ways to save for retirement. Unlike an ISA, they are not taxed on entry, which means that when you make workplace pension contributions from your salary, they go in before the tax has been deduced (gross) rather than afterwards (net). This means that you are able to save more than if you'd allocated a portion of your salary towards an investment account. Most companies also match their employees' pension contributions up to a point. So if you contribute 5% of your salary towards your pension each month, your employer might add another 5% for you. Free money! We've discussed how this works in more detail in a previous post here.
Furthermore, you can also contribute to a personal pension outside of your workplace. SIPPs (Self Invested Personal Pensions) are the most common way of doing this.
However, there are two main points to note when contributing to your pension. Firstly, the money will be taxed as income when you take it out, unlike the proceeds from an ISA which will be tax free. Secondly, there are penalties for withdrawing money from your pension before retirement, which means that you should only be contributing money that you know you wont need until then, which can be easier said that done.
The pros of putting all your pensions together
When asking Should I Put all my Pensions Together, there are a few things to consider. One of the problems people find with workplace pensions is that they get given a new one, with a new pension provider, each time they start a new job. Now, this wasn't so much of a problem in the past when the average time spent at a single company was rather lengthy, but over the past few decades career mobility has improved significantly. It is now easier than ever to change jobs and the increase in availability of career and recruiting information means that people, particularly younger members of the workforce, are changing jobs more frequently. This means that they are building up a larger number of pensions split across providers.
In fact, people often get lumbered with small pensions making up insignificant amounts. Short tenures, internships or summer jobs often come with pensions that barely seem worth the decades of paperwork that the company will be sending your way. Given that you probably won't be needing them for a good while, it's easy to forget that they're even there! And given that you'll want to be drawing down from them, that isn't a great idea. Even if you do keep them all in one place, they will all be managed by different funds under different strategies, which means that you might not be allocating the funds in a manner consistent with the rest of your portfolio (or significantly diversified to match your risk profile).
The cons of putting all your pensions together
The problem is that it's actually quite difficult to combine them. Pension providers are naturally quite resistant to their customers packing up and leaving, and there are a number of things they do to restrict this. Forms often have to be submitted by post in paper format, consist of reams of paperwork and tricky questions that make it easy to slip up (at which point they will generously return them to you). In fact, not all pensions can even be managed digitally, especially those offered by legacy providers. Now, for the more tech forward providers, you can manage their pensions using the relevant API on your Strabo dashboard. This at least provides visibility over them all, if not actually combining them (the paperwork, we won't be able to fix). However, you'd have to add the non-digital ones as manual assets, along with their documents into the relevant document wallet on the platform.
So then, what to do? It's not so much should I put all my pensions together, but can I? Well, fortunately there are external solutions. We like PensionBee the most. All you do is sign up, provide some basic details, list out the companies you work for and tick the box, and they'll go away, find them and bring them all together into one pension. Which is great! What's more, you can manage that PensionBee platform on your Strabo dashboard.
One drawback is that the fund selection is quite small, so if you're picky about how you want your pensions to be managed then you might have to go elsewhere. You are constrained to a couple of options, and the fees that come with them, although this wasn't enough of a barrier to stop us from using the platform.
So, Should I Put All my Pensions Together
To be honest, there aren't many drawbacks. It depends on how many pensions you have, how much of an inconvenience it is managing them and tracking their values, and whether you're picky enough that only having a limited fund selection makes a difference. It might also be that early on in your career, your pensions might be small enough that you aren't as picky about where they go, and as your career progresses and retirement starts looming slightly larger on the horizon, it moves to front of mind.
Should I put all my pensions together? If you're ok with the limited drawbacks, we'd certainly recommend looking into it. Either way though, if the assets are managed digitally anywhere and hence can be added to an aggregator, they can also be added individually to your Strabo dashboard. We think that it's important that not only are your pensions tracked and managed as an individual asset class, but also in conjunction with the rest of your portfolio - after all, you will be drawing down on it all simultaneously on retirement, so it's important to make sure that it's all correctly invested on an appropriate time horizon for that date. Let us know your thoughts and sign up below to start managing your pensions (aggregated or otherwise) on Strabo!