When we reach retirement age, we use a pension to create an income. But changes to working habits could make it far more complicated for today’s workers. As a result, actively managing pensions now is important.
Employees today are likely to swap jobs frequently, to suit their lifestyle and career goals. It’s a trend that can help workers balance work and personal life, and further their career prospects. However, each position is likely to come with a pension and it can make managing retirement savings a headache.
Two-thirds of workers in the UK think that a job for life is a thing of the past, according to a survey conducted by Aegon. Younger generations expect to switch jobs frequently. As a result, 73% of today’s workers agree they’ll have far more jobs than previous generations.
Just one in twenty workers aged 18-34 expects to spend more than 20 years with a single employer. This compares to 48% of workers 55 or over who either already worked for a single employer, or expect to work for a single employer, for more than two decades.
Auto-enrolment means new pensions as you switch jobs
Auto-enrolment has been successful in getting more people saving. But it means each time you start at a new company you’re likely to be enrolled in a new pension scheme.
To be automatically enrolled you need to meet the following criteria:
- Aged between 22 and State Pension age
- Earn at least £10,000 per year
- Usually work in the UK
Under auto-enrolment, you will contribute 5% of your pensionable earnings each month, and you can increase this if you wish. Your employer must also contribute 3% of your earnings, though some employers may offer higher contributions. Your contributions will also benefit from tax relief.
If you don’t fit the criteria above, you still have the option to join and your employer may also still contribute on your behalf.
As a result, most workers will benefit from a Workplace Pension with each employer. This is great news for retirement savings. But it means you could retire with multiple pensions to juggle.
The challenges of juggling different pensions
If you don’t actively manage your pensions while working, it’s challenging to understand how much you’re saving. To get a snapshot of whether you’re on the right track, you’ll need to find the information for multiple pensions. It can make it difficult to know if you’re saving enough.
When you come to retirement and are deciding how to access your pension, having it in multiple pots can cause a headache too. Once again, you’d need to bring together the values of different pensions to understand the income and lifestyle your retirement savings can deliver.
On top of the challenges multiple pensions can cause when trying to understand your retirement, it can mean your investments don’t go as far. For example, charges on a smaller pension can effectively wipe out investment gains. In some cases, consolidating your pension can improve returns and make retirement plans easier to manage.
Consolidating pensions could provide a solution
Consolidating allows you to transfer pensions into another existing pension. This way you’re able to reduce how many pensions you have to manage. It can make it easier to keep track of investments.
For many, consolidating pensions, especially if you have multiple small pots, will make sense. It can help you reduce the impact of charges on investment performance. At the point of retirement, it can also make it easier to access your pension to create an income.
However, sometimes consolidation isn’t the most appropriate choice. For example, some pensions will come with additional benefits that you’d lose if you were to transfer out. This may include the ability to access the investments earlier than usual which may be beneficial to your retirement plans. So, it’s important to fully understand your pension before you decide to consolidate them.
You also need to consider where your pension is invested too. There are many areas to consider, including long-term investment performance, charges and your current Workplace Pension scheme.
Please contact us if you’re juggling several pensions and want to make them easier to manage. We’ll work with you to create a long-term plan that not only factors in ease of managing pensions now but consider your retirement too.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.