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Hargreaves Lansdown urges pension fund consolidation

Hargreaves Lansdown is urging customers to consolidate their pensions pots and break from the dogma of spreading pension arrangements.

The firm says the fact that people are getting through an average of five jobs in their working lives has led to a massive increase in the number of pension pots in existence.

ABI figures show 21 per cent of adults over the age of 50 had at least three private pensions in 2002 and there were 23 million personal pension contracts.

But only 10 million of them received tax relief in that year, meaning there were 13 million dormant accounts.

Hargreaves says there are a number of compelling reasons to consolidate pension arrangements.

It makes it easier to track the performance of fund managers and the adequacy of overall pension provision while also making it easier to build a coherent investment strategy.

A-Day rules ensure once policyholders start drawing a pension it is difficult and, in some cases, impossible to consolidate their pensions into one arrangement. The rules also make it easier for people to take control of their pensions in one place as it has become easier to consolidate pensions than to transfer a mortgage.

Hargreaves says consolidating pensions also brings economies of scale, as even some stakeholders give discounts for large fund values. The firm says diversification of risk, historically seen as one of the principle reasons for having multiple pensions, can now be achieved within a single pension.

Head of pensions research Tom McPhail says: “Consolidating a pension into one arrangement makes it much more likely that they will manage their retirement planning effectively. They save money, it makes the IFA’s life easier and it ensures that administration is kept to a minimum when they get to retirement.”

Affluent Financial Planning managing director Carl Melvin says: “I am fully in agreement. Those with multiple arrangements are more confused and receive statements from different providers at different times. Now you can be in a wrap or a Sipp and have a range of funds so diversification of risk is not an issue in a single arrangement.”

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