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There are some important considerations to take into account with your old trail of pensions that you drag behind you like the cans behind a wedding car. My recommendation is that you seek the advice of an Independent Financial Planner with advanced pension qualifications because there can be other aspects of pensions that would affect this advice. My hope is that those people who are determined to do it themselves will make better decisions as a result of reading my blog posts.
Either way, assuming you don’t give up valuable benefits or increase the charges more than the likely investment improvement, it is a good financial planning exercise to consolidate your pensions into one centralised solution. This allows you to manage your pension with much greater flexibility and clarity. There are some significant changes happening in the pensions sector. However, in moving to a more modern, online method of pension administration, you have a much better opportunity to improve your investment returns, in part because you will actually notice when you are not improving.
When you have five different pensions, what is the chance that you will look into the performance of each? Pretty small, I would guess. If you have one, you have a much greater chance of keeping tabs on pension performance. Similarly, when you start drawing an income, you can manage your money much better. You can focus more easily on your ‘Financial Freedom Number’, on whether you are on track to have enough or whether you might start to run out.
All WRAPPED Up
How should you consolidate your pensions? Historically, people did have five different pensions, maybe eight different ISAs (now called NISAs) or PEPs, and possibly a few Unit Trusts, as well as the odd Investment Bond. This made managing your money a nightmare. You got statements from the providers at different times and, unless you were willing to put in some serious hours or pay someone else to do so, you could not very easily track your progress. You had paperwork up to your eyeballs and so it mostly got ignored. This is why life companies have gotten away with keeping so many people in these closed funds that no longer provide them with a return.
We have managed our clients’ money for the last 15 years through what is now known as a WRAP platform. This can be thought of as a technology platform that provides you with different tax wrappers like the NISA or the pension, amongst others, which then gives you access to pretty much every investment in the open market. Some will also allow you to invest directly into shares, too.
The advantage is that, with the exception of a ‘Necessities Account’ and other cash-based savings such as a ‘Play Account’, a client’s investable money is all in the same place. Furthermore, you can decide on an investment approach and then apply it to all of the different tax wrappers in order to simplify matters. You can log in online and see your portfolio in the same way as you can with online banking and you can monitor your investment returns and clarify for yourself how to draw the income to minimise the tax you pay. You can also perform one vital action on your portfolio that is nearly impossible to achieve when you have multiple accounts: ‘Rebalancing’.
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