Savers are confused over the benefits of pension consolidation and how putting their pots under one roof can save them money and boost their retirement incomes.
Despite the advantages of putting several pensions together as one fund, millions of savers have never investigated if combining their pots could give them more money.
Research by financial firm Aegon reveals 15% of pension savers wrongly believe consolidating their pensions would result in paying higher fees.
The report found that 60% of savers did not understand pension consolidation would save them money and 66% had never looked into how putting their savings into a single fund might benefit them.
The financial firm explained the findings revealed savers were unaware that they could consolidate their pensions, while 37% have multiple pension pots and 22% had no idea how many pensions they have.
Reducing management fees
The study also disclosed that although many pension savers could benefit from consolidation, the problem is likely to worsen as auto-enrolment of workplace pensions creates more funds.
Mark Till, managing director of Aegon UK Direct said: “Figures show 92% of retirement savers are falling short of their financial targets, so any method of increasing the cash available when someone gives up work is worth looking at.
“By combining pensions, savers can reduce management fees that erode the value of each fund, so shifting pensions into a single pot can be cost-effective.
“Combining pensions can come with other benefits that gives the potential for a bigger retirement fund from the same amount of money.”
Pension consolidation is the process of moving a number of separate pension funds into one scheme.
Consolidating into a QROPS
The aim is to cut the costs of savings and to benefit from economies of scale in investments, as lower fees free up more cash to invest in the fund.
Workplace and private pensions can be consolidated into another UK pension scheme or into an offshore Qualifying Recognised Overseas Pension Scheme (QROPS).
A popular choice is to consolidate into a self-invested personal pension (SiPP) or QROPS to take more control of investment options.
QROPS are also tax-effective pensions for expats or international workers with a frozen UK pension.
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