Planning Ahead: The Benefits of Pension Consolidation in 2017
While the direct issue of pensions may not be one that dominated the 2017 general election, it is something that should remain a key concern for voters across the UK.
The government’s recent Green Paper highlighted serious concerns about the future of defined benefit pension schemes, which continue to offer reduced value to clients while driving inflated operational costs. Even more worryingly, austerity and the advent of auto-enrolment means that modern citizens end up with an average of 11 alternative pensions by the time they retire, and this can lead to clouded decision making that impacts on the value of your fund.
In this article, we will examine the demise of defined benefit (DB) schemes and discuss the benefits of consolidating your savings into a single account.
The Benefits of Consolidating Alternative Pensions
There is no doubt that current savers face a unique set of challenges as they look to build their retirement funds. With an uncertain jobs market having undermined the value of DB schemes and end users finding it increasingly difficult to manage their separate pensions, it is little wonder that Brits are currently struggling to accrue wealth in time for their retirement.
Interestingly, consolidation may serve as a viable strategy for savers in the current climate. While experts are quick to extol the pros and cons of consolidating individual pensions plans, there is no doubt that this tactic has increased merit in an age where real wage growth and job security remains scarce.
After all, consolidation enables end users to retain their retirement savings in a single place, creating a fund that is far easier to monitor, manage and optimise over time. This can also reduce the cost of managing larger funds, as some providers minimise charges depending on the size and scale of your pension pot.
There are other potential benefits too, depending on the type of pension plan that you use to consolidate your funds. If you choose to transfer your funds and consolidate them in a self-invested pension plan (SIPP), for example, you can withdraw a cash lump sum while benefiting from a wider range of investment options. In the case of Bestinvest, customers can even transfer funds from other providers for free, while these also pledge a cash sum to cover any costs charged by alternative providers.
This allows for more cost-effective management, enabling you to optimise your wealth even in a difficult economic climate.
The Bottom Line
While those approaching retirement in the UK may have been hit by stagnant wage growth and the demise of the traditional DB pension scheme, evolution and sustained innovation is continuing to present them with ways of optimising their pension fund.
The emergence of SIPPs offers a relevant case in point, particularly for those with multiple pensions who are keen to reduce costs, improve their investment options and manage to consolidate their funds in a single place.