The ‘Pot for Life’ model was mentioned in the ex-chancellor’s 2023 ‘Autumn Statement’ when he said it would give a “legal right to require a new employer to pay pension contributions into their existing pension".
The focus of this article is not to debate whether or not the new government will honour the notion of a pot for life. But instead discusses the drawbacks of having multiple pension pots, and explains how even without the Pot for Life being implemented you could enjoy the benefits of pension consolidation through financial advice.
Multiple pension pots - what’s the problem?
It’s very common for people to have multiple pension pots, accumulated from different jobs over the years. We are in a privileged position to be selected by large and small companies to come in and provide financial wellbeing services to all of their employees, as well as their C-suite executives, directors, and partners. One of the most common themes we see when we look at their pensions is a myriad of unconnected, underperforming, inefficient and sometimes unsuitable pension pots collected over numerous roles. In many cases, people have no oversight on them and in even more extreme cases have forgotten about them or are unable to locate them altogether.
Some of the core problems which we see as a result of having multiple pension pots are summarised in the table below, as well as some of the potential benefits of consolidation:
How to navigate pension consolidation
While the "pot for life" proposal aims to simplify pension management, regardless of its implementation, you can take steps to consolidate your pensions now:
Seek professional guidance: Consolidating pensions can be complex, especially with changing regulations and varied investment options. Some of your pensions may also have safeguarded benefits which are important to understand before transferring away (as you might lose them). Consulting a financial adviser can help navigate the consolidation process, identify the best options for your needs, and optimise your retirement strategy.
Build a plan to maximise contributions: Ensure you’re taking full advantage of employer contributions and tax relief benefits by discussing contribution levels with your employer. There are also plenty of helpful online tools and calculators which can help you understand what you should be aiming to spend and what level of income you’re currently on target for in retirement. Regularly review your contribution levels and adjust as necessary to maximise your pension savings. A professional adviser should also be able to help you with sophisticated cashflow modelling technology to help you understand the trajectory you are on and how this can be improved.
Conclusion
Managing multiple pension pots can be a daunting task, leading to inefficiencies and missed opportunities. Consolidating your pensions into a single pot can simplify management, reduce fees, and enhance investment options, ultimately leading to a more effective retirement strategy. While the "pot for life" proposal may offer a legal framework for pension consolidation in the future, you can start taking steps today to streamline your pensions through financial advice. If you’d like to discuss this with an adviser, you can book in for a call here.
Disclaimer
Capital at risk. Past performance is used as a guide only. It is no guarantee of future returns. Different funds and asset classes carry varying levels of risk depending on the geographical region and industry sector. You should make yourself aware of these specific risks prior to investing. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change. We do not provide tax advice. This blog post does not constitute personal advice.