The average person in the UK works for six different companies during their lifetime, which means they will probably hold six different pension pots, research by financial services giant Quilter has revealed.
As a result, they could be missing out by not having their retirement funds in a single pension. Quilter estimates that consolidating multiple pensions into just one could see workers save an extra £140,000 ($191,300, €157,000).
This represents “enough for over four years of income for a comfortable retirement”, the firm said.
Similarly, it calculated that for someone to achieve a pension income of £33,000 a year from age 65 to 95, people would need to have around £500,000 in their pot.
But assuming that a person has six different pensions with six providers of approximately £83,300 in each, and they all charge different annual fees – Quilter estimated charges of 1%, 1.3%, 1.6%, 1.9%, 2.2% and 2.5% – they could expect to have just under £1.1m after 20 years if they consolidated all their pots into the cheapest one.
This compares to holding £936,747 if the person didn’t group all their pensions together, Quilter found.
The firm’s research also assumes investment growth of 5% a year.
‘Dormant’ pension pots
Ian Browne, pension expert at Quilter said: “In times gone by someone may have got a job at a company straight out of school and worked there for the entirety of their career. This is now a rarity with most having at least six employers and six different pension pots associated with each.
“Particularly now, thanks to the success of workplace pension schemes, more and more people are putting money away for their retirement, but because their pension pots don’t follow them, these pots can lay dormant for years with annual charges eating away at their value.
“With a huge variety of different annual charges seen across the pension industry, it is essential that pension savers understand what charges they are paying and whether they can consolidate their multiple pots into the most efficient and best value one as over the long term this can make a material difference to how much they will have in retirement.
“The upcoming pensions dashboard may help users find and consolidate their pots. However, figuring out what represents the best pension pot for you isn’t solely down to fees, and so it’s vital to get financial advice. There are scenarios where consolidation may not be the best course of action which is why professional financial advice is key.”
