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Savers could boost their pension pot by “thousands” of pounds by switching away from multiple pension pots and combining their savings into one pension, research from AJ Bell has revealed.
The analysis showed that someone combining three pensions with charges of 1.5 - 0.75 per cent could boost their pension pot by over £7,000 over ten years or £20,000 over 20 years if they were to switch to a single, lower cost account, charging 0.45 per cent.
AJ Bell also warned that while the charge cap of 0.75 per cent applies to the default investment option in auto enrolment workplace pensions, many pension policies, including older contracts or those set up outside auto-enrolment, may carry higher fees.
Indeed, previous research from the Financial Conduct Authority (FCA) showed that charges on some older pensions, especially smaller accounts, can average around 2 per cent.
AJ Bell’s director of public policy, Tom Selby, also argued that, in addition to boosting retirement prospects by saving on charges, combining pension pots could save people time and reduce hassle, making it easier to manage their retirement savings in one place.
“It can feel daunting getting all the paperwork together to track down your old pensions, but there are tools out there that can help," Selby continued.
Many savers currently have multiple pension pots, with analysis from Interactive Investor revealing that more than one fifth (21 per cent) of savers aged 18 to 34 already have five or more pension pots.
This also followed on from previous research from the Pensions Policy Institute (PPI), which revealed that 2.8 million pension pots worth £26.6bn are considered lost.
However, Selby argued that "the important thing is to look at whether you’re getting good value for money", clarifying that "if a fund is charging more for active management, that can be worthwhile if it’s delivering outperformance that justifies the extra cost".
If you would like to know more about the pros and cons of Pension Consolidation, you can watch our video on the topic here.
If you want a better view of what your future could be, we'll have a chat over a cup of coffee in our Durham office and work out if we can add any value to your financial picture.
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