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Jun 29

Is It Time to Change Pension Provider?

Reading Time: 5 mins

Pensions. They’re something that we probably don’t spend a lot of time thinking about. Talking pensions might not seem essential, especially when we’ve got lots of other expenses eating away at our pay packets. The benefits of a different pension provider might seem complicated or intimidating. It might just be one of those boring bits of life admin that we never quite get round to, even when we really know that we should. 

It’s lucky, then, that companies providing a pension to qualifying employees has been the law for a few years now. This means your employer pays at least 3% of your salary into a workplace pension. You’ll also contribute at least 4% – but can opt to add more. You can opt out of this scheme – but try not to if you can afford the payments.

Of course, auto enrolment doesn’t cover everyone. If you’re self-employed or don’t earn enough to qualify for a workplace pension, you’ll need to take control of your pension yourself. Once you’ve set one up and started paying into it, you’ll need to regularly check to make sure your provider is still giving you the best deal possible. 

Here are some of the things that you need to be aware of when it comes to your pension pot, including how to decide if it’s time to switch.

Have you got any pension pots you might have forgotten about?

Trace lost pensions before changing pension provider

Yes, this sounds obvious. But forgetting about a pension pot is easily done, especially if you’ve moved between a few different jobs. Your new employer might not use the same provider as your old one. So, a new pension pot is set up. You can transfer your old pensions into your current one – if the benefits outweigh disadvantages. (For example, transferring a final salary pension could mean you lose the final salary sum). 

Remember that, if you’ve been paid through payroll by an employment agency, they’ll have been paying into a pension pot for you, too. You need to make sure all your pension pots are being kept track of, otherwise you might forget about them. And that really would be throwing money down the drain! 

Read more about finding your old pensions.

Consolidating your pension pots

To consolidate your pension pot, you need to look into which of your current pension providers is offering you the best rate for your circumstances. Of course, this might not be the one that you’re currently paying into. That’s OK, though. As long as you keep track of them, it’s fine to have multiple pension providers. If you want to keep the provider with the preferred rate do that, and just transfer the pension from your current role into it when you move jobs in the future. 

Consolidating your pension pot (or pots) is a simple process. Most providers in the UK are signed up to a system that allows this to happen easily. Just give them a call or fill out their online transfer form, and they’ll be able to get the process going for you. It’s usually completed within one month. 

It’s also worth noting that you shouldn’t consolidate any final salary pensions, as you’ll lose the benefits that come with them. The biggest benefit is likely to be the guaranteed income that it will give you for life. You’ll lose this if you move the pot, so leave it where it is! 

Can I have more than one pension provider? 

As mentioned above, this is completely fine. In fact, it’s advisable. Having a pension across two pots will increase portfolio diversity, which is a way to protect your finances when the economy is in a bad state.

Remember, most pensions will fluctuate depending on the stock market. So having two separate pots with different pension providers, offering different levels of risk, can be a sensible way to protect your investment when the market fluctuates. Remember to also consider other investments too, such as property, stocks and shares ISAs, or even a Lifetime ISA.

How should I know when to switch pension provider?

These days, the pension provider that you’re signed up to via your workplace will be decided by them. If you’ve got a private pension, though, you might want to look into your switching options. Reasons that you might want to switch include: 

  • Your annual fees are too high, and you can find a provider that charges less 
  • Your drawdown rate (the amount you will take out each year to live on) is too high, and it’s eating into your pension income 
  • You want to switch to a higher risk scheme, in order to see more return on your investment 
  • You’re worried about the volatility of the market and want to switch to a low-risk scheme to protect your existing pension pot
  • You’re no longer paying into your pension pot (for example if you’ve left a job) and want to transfer it to a provider that will do more for you. 

You can use a free service, for example MyPensionExpert or PensionWise, to get free advice about switching and check which pension provider might be a better fit for you. 

What to look for in a pension provider

Switch pension provider to avoid losing money to charges

If you’ve made the decision to switch based on the above criteria, you’ll want some guidance on where to take your pension pot as an alternative. Citizens Advice has some great free advice on this. Things you’ll need to consider include: 

  • What risk is involved. If you want to grow your pension quickly, a higher risk pension is likely to be better for you. If you want to keep things more stable, it certainly won’t be! 
  • The minimum payment rate, if there is one – obviously, you’ll need to make sure you can afford to pay it every month
  • The cost of charges, for example if you want to pull any of your pension early, or make changes further down the line

You’ll also need to decide whether a personal pension (where you pay every month) or a stakeholder pension (which offers more flexibility) is the right option for you. 

In order to find the right pension provider and scheme for you, you need to be clear on the reasons why you want to change. There’s no point switching schemes just to end up with the same problems that you had before. 

What if I need extra advice? 

If you’ve got a complicated retirement plan or a large portfolio, it’s well worth the money to speak to an independent financial advisor about your pension pot. This might be the case if you want to withdraw a large lump sum when you reach the age of 55. Believe us, it’s well worth paying for the advice!

Got anything to add on the pension provider conversation? Share your advice over on our forums.

More Pension Tips

Learn more about setting up and managing your pension investments with these articles.

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