When to consolidate your pension pots

  • Retirement Planning
  • 4 minute read

The employment landscape has evolved significantly over the last few decades and changing jobs multiple times before retirement is now very much the norm. Today, the average person has more than 10 different employers over the course of their career.

As a result, many people often have multiple pensions set up as they have been automatically enrolled into a new pension scheme each time they have started a new job. A large number of people even have pensions they have forgotten about, with the Association of British Insurers (ABI) estimating that more than 1.6 million pension pots in the UK worth £19.4 billion are ‘lost.’

If you have accumulated a number of pension pots over the years from different employers, consolidating them can be a sensible move. You may have pensions that were set up a long time ago and are no longer suitable for your requirements, or you could be over-paying for services such as life insurance that are not required. Monitoring the performance of multiple pensions is also time consuming. By bringing together all your different pension pots, it can give you more control over your money and provide a much clearer picture of your overall pension savings.

In this article, we take a closer look at the advantages and disadvantages of consolidating pension pots and explain when it makes sense to consolidate.

Advantages and disadvantages of consolidating pensions

There are a number of advantages of consolidating your pension pots. 

For a start, bringing together all your different pensions will make it easier to manage your money. Less time will be needed to monitor each different pension and check performance, and there is likely to be considerably less paperwork once your pensions are combined. You’ll also likely to get a better understanding of whether your retirement planning strategy is on track.

Crucially, having all your pension savings in one place should also make it far easier to determine your overall asset allocation. If your pension savings are spread out over many different providers, it can be hard to keep track of your exact asset mix and know how much risk you are taking on. If you have a plan that was set up a long time ago, you may not even know what investments you currently hold.

Additionally, consolidating your pensions can give you the opportunity to lower costs if you switch to a more cost-effective pension provider, or boost your investment options if you transfer to a more flexible provider.

Yet there are also a number of disadvantages to consider.

For example, there may be costs associated with transferring a pension from one provider to another, so it may not be worth it. Make sure you read the small print and clarify exit fees before consolidating.  

Pension transfers can also take weeks or even months to complete which means that you could be out of the market for a while. As a result, you could potentially miss out on investment gains if the market rises while you’re in the consolidation process.

When to consolidate your pensions

Given the benefits of bringing together multiple pension pots, a pension consolidation could be a sensible move if:

  • You have a number of pension pots and want more control over your money
  • You have a number of pension pots and want less hassle
  • You are unhappy with the performance of a current provider
  • You are unhappy with the choice of investments offered by a current provider
  • You are paying high fees with a current provider

However, a pension consolidation is not always the best move. It may not be sensible to consolidate your pensions if:

  • You are a member of a defined benefit pension scheme. If you transfer out of this type of pension you’ll be giving up guaranteed benefits and potentially taking on greater risks
  • You have a pension that comes with valuable benefits. For example, a pension may allow you to buy a higher income in the future via a ‘Guaranteed Annuity Rate’
  • You have a pension provider that charges high fees to transfer to another provider

How to consolidate your pension

There are a number of ways that pension pots can be consolidated.

For example, one strategy is to pick one of your pension pots and transfer the other pensions to this pot. This could make sense if you are happy with the services offered by one provider in particular.

Alternatively, you could bring all your pensions together into a Self-Invested Personal Pension (SIPP) – a government-approved personal pension scheme which allows you to make your own decisions about how your pension savings are invested.  

In terms of the consolidation process, it is usually quite straightforward and simply a matter of contacting the provider you want to stick with and providing them with the account details of the accounts you wish to transfer in.

When to seek advice

Because there are both advantages and disadvantages associated with consolidating pension pots, it can be a complex decision to work out whether it’s the best move to make, particularly if defined benefit plans are involved. There are a number of variables to consider.

Often, the most sensible thing to do before consolidating your pensions is to speak to a pensions expert who can provide tailored retirement advice that is specific to your individual circumstances and help you make the decision with confidence. As always, it’s important to understand the benefits and risks involved.

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Before you invest, make sure you feel comfortable with the level of risk you take. Investments aim to grow your money, but they might lose it too.