Consolidating your pension pots

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Last updated: June 18, 2024

If you’ve worked in various places over the years, or started private pensions of your own accord, you have likely accumulated several pots of money. Many of our clients come to us with the following scenarios:

  • They feel like they can’t keep on top of the different places their money is held
  • They have lost track of what they have and recollect some pensions but have a feeling there might be one or two more somewhere else
  • They’re unsure if some of their pensions are invested in the right way

So, the golden question: Is it best to combine all of your pensions for ease?

There is no right or wrong answer here, it comes down to your objectives and preferences. However, we will run through the benefits of consolidating pensions and things to consider before you go ahead and consolidate. That way, you can make an informed decision.

The advantages of consolidating pensions

They can be easier to manage

Having one retirement pot can reduce the chances of losing track of your savings. There is no need to get in touch with a list of providers when you want to manage your pension, write down a multitude of login details, or do calculations across various pension types.

When people move home or change name it can also be an issue since you need to inform your pension provider of your change in details so the pension remains matched to you.

In October 2022, the Association of British Insurers reported that three million UK pension pots worth £26.6bn were no longer matched to their owners, putting these savers in danger of missing out on significant sums of cash.

Lost pensions are worth an average of £9,470 each and often become unmatched from owners who fail to tell providers when they move home. If you’ve lost track of a pension, the government’s pension tracing service may help you find it. We can also help here, get in touch and we’d be happy to assist.

Having one pension pot makes it much easier to update when required.

Lower costs

Having several pension pots likely means you having higher costs since you are paying fees on each pension. By combining them, it’s possible you can reduce the fees you pay by paying one administration cost rather than two, three or more.  It’s also easier to keep on top of the fee you are charged if there is only one.

The potential for better returns

If you are unhappy with the rate of growth and return of your pensions, consolidation may be a good option.

Some schemes, particularly older ones, offer limited investment options. Moving to a consolidated pot with a provider that allows for a range of funds can potentially increase the size of your pension thanks to better performance.

This isn’t always guaranteed and we would advise that you speak to a qualified financial planner before making investment decisions. However, with the right approach, you can make your money work harder. You can read more about our investment approach in our blog on ‘The basics of market returns & volatility’.

Flexible drawdown options

Schemes set up before pension freedoms were introduced in 2015 may not be as flexible as newer schemes. Income drawdown came into effect in 2015. This makes it possible for people to withdraw money from their pensions from the age of 55. Check your pension pots offer this option and, if not, you might find that consolidating to a newer pension scheme gives you more freedom.

Things to consider before consolidating your pensions

Are any of the existing pensions final salary pensions?

Final salary pensions can be very lucrative since they offer a guaranteed income for life and protection against inflation. They can also offer an additional element of security for your loved ones since some final salary schemes will pay out to a surviving spouse if the pension owner dies after reaching the scheme’s pension age. All in all, it can make sense to leave final salary pensions where they are rather than combine them with others.

Would you miss out on valuable benefits?

It may be worth keeping a pension where it is, if it currently comes with benefits that you find valuable. Transferring money out and into a consolidated scheme could mean you lose these.

Benefits can include but are not limited to:

  • a guaranteed annuity rate
  • the ability to withdraw more than the standard 25% tax-free cash sum allowed under drawdown
  • being able to take a pension earlier than 55
  • life insurance or critical illness cover

Before consolidating pensions, consider whether you’d be sacrificing benefits and if you are prepared to do so.

However, a consolidated scheme can also offer some or all of the above so weigh up the pros and cons, you may also find moving to one pension pot to be worthwhile.

Are your current pensions performing well?

If you are happy with the returns you are getting on your current pensions and feel like you can manage them efficiently, there may be no need to move them. It isn’t guaranteed that moving money into one scheme will result in a bigger pension pot. That said, it is always worth understanding your options. You may be happy with your current returns, but find out the past performance of other pension schemes for a comparison point.

Are there fees for exiting your current pension?

Check if your current providers charge exits fees and ensure those costs don’t outweigh potential gains.

If you require your pension imminently, it may be best to leave it where it is so you don’t lose out on money. However, if you don’t need to draw down on it for several years, it could be cost effective to switch since there will be time to recover the cost with market returns.

Have you sought advice from a qualified financial planner?

You may well find talking to a financial planner/adviser useful since they can explain all of the pros and cons in detail whilst putting your individual scenario into context. Check they are FCA (Financial Conduct Authority) registered and we would also suggest seeking someone who is Chartered for high quality advice.

A financial planner can discuss market performance and also help you to align your pension strategy to your life goals.

This content is for information purposes and should not be treated as financial advice. We would always recommend speaking to a professional before making decisions regarding your wealth. The value of investments can fall as well as rise and you may not get back the amount originally invested. Past performance is not a guarantee of future results. Values change frequently and past performance may not be repeated. Even a long-term investment approach cannot guarantee a profit.