This is a question we are often asked.
Many people like the idea of amalgamating pension plans. It gives the impression of simplicity. In general, we agree, but it is not always the right thing to do.
If you have a defined benefit scheme, clearly, it requires specialist advice before taking action, however defined contribution schemes can often be amalgamated.
You need to be aware of costs of transfer as well as the ongoing costs. Clearly investment performance is always an issue. Importantly also is risk measurement and asset allocation.
Generally, company pension schemes provides default options. And as individual advice is rarely provided, most people elect for default options. Default options are more about risk management for the company schemes, which means they may not be right for you. As such, it makes sense to get individual advice.
Company schemes in our experience are competitively priced, as such, if you have an existing scheme with higher charges, you may want to amalgamate to reduce costs.
And its relatively easy to do. By contacting your current employers’ scheme, they should guide through the process of transfer.
Is there any downside? Whilst it is easy to do yourself, we would always recommend you take advice. If you have done your homework on costs, you can make an informed decision. Yet you need to get asset allocation and risk right. This is where the big problems arise.
By choosing the wrong funds with the wrong risk, you can lose 2%, 3% 4% or more each year. It means, when you identify a cost saving but get the asset allocation wrong, the net result is a very poor decision. And when you multiply how many years you will be invested, getting it wrong can be very expensive.
If you cannot competently communicate your risk and asset allocation to someone else, (Albert Einstein once said, if you can’t explain it to a 6-year-old, you don’t understand it) it means you don’t understand enough about the problems. This is a signal which tells you, take advice.
Be Curious
Be Interested
Be Inquisitive
It’s your money.