If you’ve changed jobs a few times throughout your career, there’s a good chance you’ve accumulated several different pension pots along the way.
One might be with a former employer, another with a pension provider you barely remember, and perhaps another with your current workplace pension scheme.
It’s easy to lose track of what you have, how much you’re paying in charges and whether your pensions are working together towards your retirement goals.
That’s why many people consider pension consolidation — bringing some or all of their pensions together into one arrangement.
But is combining your pensions always the right move? Not necessarily. Here are the main advantages and disadvantages to consider before making a decision.
What is pension consolidation?
Pension consolidation involves transferring money from multiple pension arrangements into one pension plan.
For example, if you have three old workplace pensions and a personal pension, you might consider transferring eligible pots into a single arrangement.
The aim is often to make your retirement savings easier to manage, review and monitor.
However, consolidation doesn’t automatically mean better investment performance, lower charges or a higher retirement income. Those outcomes depend on the pensions involved and the arrangement you choose.
The advantages of consolidating your pensions
1. Your pensions are easier to manage
One of the biggest benefits is simplicity.
Rather than logging into several different pension accounts, keeping track of different providers and storing multiple statements, you may be able to manage your pension savings in one place.
This can make it easier to understand your overall retirement position and see how much you have accumulated.
It can also make retirement planning more straightforward when you need to decide when to retire and how to use your pension savings.
2. You may be able to reduce charges
Different pension providers charge different fees. You might pay an annual management charge, a platform fee, investment fund charges or other policy costs.
Combining pensions could reduce your overall costs if the receiving pension has a more competitive charging structure.
However, this is not guaranteed. Some modern pensions have higher charges than older workplace schemes, particularly where valuable benefits or low-cost arrangements are involved.
It’s important to compare the total cost of each arrangement rather than simply looking at one headline percentage.
3. You can review your investments more easily
If your pension savings are spread across several providers, you may not know how your investments fit together.
You could unknowingly hold similar funds in different pensions, or have investments that no longer reflect your attitude to risk or retirement plans.
Consolidation may make it easier to develop a coordinated investment strategy.
However, moving your pensions does not automatically improve investment performance. The investments selected, their costs and the level of risk taken remain important.
4. Retirement planning can become clearer
As retirement approaches, you may need to consider when to access your pension, how much income to take and how to manage the risk of running out of money.
Having fewer pension arrangements can make it easier to understand your options, although some people benefit from retaining separate pensions for different purposes.
A good pension review should look beyond the number of accounts you have and consider how your savings could support the retirement you want.
The disadvantages of pension consolidation
1. You could lose valuable benefits
This is one of the most important considerations.
Some older pensions include benefits that may not be available under a new arrangement. These could include:
- Guaranteed annuity rates that offer a valuable retirement income.
- Protected tax-free cash entitlements.
- Guaranteed minimum benefits or other contractual guarantees.
- Special terms attached to particular policies.
Transferring could mean giving up these benefits permanently.
Some pensions also have exit charges or investment restrictions that need to be understood before any transfer takes place.
2. Your new pension may cost more
It’s tempting to assume that one pension must be cheaper than several.
In reality, an existing workplace pension might have particularly low charges, while a new personal pension could introduce additional platform, advice or investment costs.
The correct comparison should include all relevant charges and the services you receive in return.
3. You could lose investment options or flexibility
Different pensions offer different investment choices and retirement options.
An older arrangement might provide access to investments or benefits that are not replicated by a new pension. Conversely, a newer pension may offer greater flexibility.
Before transferring, check that the receiving scheme supports your intended retirement plans.
4. A transfer does not remove investment risk
Your pension remains exposed to investment market movements, whether you hold one pension or several.
Consolidation does not guarantee growth or protect you from losses. Investment decisions still need to reflect your circumstances, time horizon and ability to withstand a fall in value.
Is pension consolidation right for you?
The answer depends on your individual circumstances.
Combining pensions may be worth considering if you have several small workplace pension pots, find them difficult to manage or want a clearer overview of your retirement savings.
However, retaining some pensions separately may be more appropriate where they have valuable guarantees, competitive charges or benefits that would be lost on transfer.
Defined benefit pensions, which promise benefits based on scheme rules rather than simply the value of an investment pot, require particular care. Transferring out can mean giving up a guaranteed retirement income, and transfers involving safeguarded benefits are subject to specific advice requirements.
You should also consider whether any transfer could affect your wider retirement or tax planning.
The bottom line
The goal shouldn’t be to have as few pensions as possible. It should be to make sure your pensions work together to support your retirement.
Before making a decision, compare charges, investment choices, guarantees, retirement flexibility and any transfer penalties. A pension review can help establish whether consolidation is worthwhile or whether some arrangements are better left where they are.
If you’re based in North Yorkshire and wondering what to do with old pensions, Yorkshire Adviser can help you explore the considerations and understand your options.
Get in touch to discuss your pension arrangements and whether a pension review could help you plan for retirement with greater clarity.