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Sophie writes: I’ve been recently looking at my pension pots since starting a new job. I have multiple and I’m not sure where they all are or how much is in them, and I am also not sure whether it would be better to consolidate my pensions, and if so to which one. I tried asking ChatGPT based on the rates and charges, but it didn’t look like it was pulling the right information through so I’m actually still stuck.
Also, I’m acutely aware that I should probably be saving a lot more into my pension, so knowing what is a reasonable percentage would be each month given the current climate would be interesting – I’m sure I’ve seen the recommended is about 19 per cent which sounds crazy in my opinion.
In terms of my retirement plan, I’m only 31, so I haven’t mapped it out in great detail. I’m currently renting on my own, living in London but hoping to buy. I’d probably want to retire close to the state pension age, whatever that ends up being by the time I retire, but part of the challenge is balancing saving for buying a house with saving for retirement.
Callum Mason, The i Paper’s Deputy Money Editor, responds: After our initial back and forth on email, you managed to contact your old workplaces and found out exactly which pensions you had.
You had one pension with £4,300 and another with £12,800. You then have your current pension, which has £1,100 in and you are still paying into. Overall, it comes to around £18,000.
Once you’d tracked them all down, you said that if nothing else, the process of getting in touch with The i Paper had made you get on top of your pensions, which in itself is a success.
You now know that you have three separate savings pots, and can focus on growing them.
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Your key question was about whether you should consolidate your pension pots. When people have multiple pots, they can transfer them into one, and some feel this helps them keep on top of their money more easily.
In some cases, it can have other advantages too. For example, how do the charges of your old pensions compare to the one you will be consolidating into?
You sent me across the fee information for your pensions, and I spoke to Lucy Heath-Thompson, financial planner at Rathbones, one of the UK’s leading wealth and asset management groups.
Lucy said that your situation – having multiple pension pots – was “very common”.
She said a major downside to it is the administrative burden.“I imagine you receive multiple letters in the post each year providing an annual statement, and you will have multiple different online log-ins,” she said.
Beyond this, though, she said there was no real advantage to you combining your pots, given the annual charge for all three plans is roughly the same.
You only started working after the advent of auto-enrolment rules in the UK – meaning employers automatically pay into a pension pot – in 2012. As a result, all your pensions are subject to a 0.75 per cent cap on charges, as long as you stay in the default fund. You haven’t moved your money from these yet, so the cap applies.
This is where Lucy’s second observation comes in. She says it may be worth you looking at the funds your pension is invested in.
Most pension providers offer you the chance to move your money between funds, with some offering alternative options that may be higher risk, but potentially result in higher returns.
As you’re three or four decades from retirement, this may be worth considering for you, though, as Lucy says, you need to take into account your risk appetite.
Your final question is about how much you should be paying into your pension.
You currently pay in the default, which is 5 per cent of your earnings, with your employer topping this up with a 3 per cent contribution.
You say you’ve seen a figure of 19 per cent mentioned, though this is not something that’s usually recommended.
The likes of Scottish Widows and Fidelity suggest workers should try and put 12 to 15 per cent away for their later years, once employer contributions and tax relief are factored in. Aviva suggests saving 12.5 per cent.
But all of this does not have to come from you. Lucy recommends putting more than you are doing into your pension if you can afford it, but also asking your employer if they do a salary match scheme.
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Some employers, for example, will match your pension contributions if you increase them. So say, if you put in 7 per cent, your employer may match this to take the overall figure to 14 per cent.
These schemes may become a little less generous in 2029 when new rules about salary sacrifice of pensions come in.
This is where someone agrees with their employer that they will exchange – or “sacrifice” – some of their salary or bonus, and the employer will instead pay that amount into their pension as an employer contribution alongside other employer contributions.
The employee saves money because they don’t have to pay any national insurance (NI) contributions on the money exchanged, unlike if they had received it as a salary. The employer saves money because they don’t have to pay NIs on the new employer contribution, whereas they would have had to pay 15 per cent NI on the salary.
The Chancellor announced these benefits were going to be curtailed from 2029, where only up to £2,000 of salary or bonus exchanged will continue to receive these NI perks.
But for the next four years, it’s business as usual.
I hope the above information is useful, and best of luck with your pension saving journey.
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