If you've changed jobs several times, you might have multiple pension pots. Consolidating them can reduce fees and simplify management, but not every pension should be transferred. Some older pensions contain valuable guarantees or benefits that could be lost.
Why Many People Have Several Pension Pots
Automatic enrolment means most employees now pay into a workplace pension. Every time you change jobs, you usually leave one pension behind and start another. Over a working lifetime, it's easy to build up several pots and lose track.
If you're unsure where your old pensions are, use the Government's free Pension Tracing Service before considering consolidation.
Could Combining Your Pensions Save You Money?
Combining pensions doesn't increase your savings. If you have four pots worth £25,000 each, you'll still have £100,000 after transferring. The difference comes through charges. If your new pension has lower annual fees, more of your investment returns stay invested.
Over 20 or 30 years, that difference can become significant. Illustrative calculations suggest that someone aged 40 with £150,000 spread across several defined contribution pensions who reduced annual charges from 1% to 0.5% and remained invested until age 65 could retire with tens of thousands of pounds more, depending on investment performance and other factors.
Consolidation can also make retirement planning easier with fewer accounts to monitor.
Jasmine Birtles: 'Don't Assume Every Pension Is the Same'
Jasmine Birtles, founder of MoneyMagpie, said: "The mistake isn't having several pensions. The mistake is assuming they're all the same. One old pension could be quietly charging more than it should, while another could contain guarantees that would be incredibly expensive to replace."
"Consolidating your pensions can make excellent financial sense if it reduces charges and makes your retirement savings easier to manage. But every pension deserves its own health check before you move a penny."
She adds: "Your pension is one of the biggest financial assets you'll ever own. Spending a little time understanding what you've got before making any decisions could be one of the most valuable financial jobs you ever do."
Which Pensions Are Often Suitable for Consolidation?
Many people choose to consolidate:
- Old workplace defined contribution pensions.
- Personal pensions.
- Stakeholder pensions.
- Auto-enrolment pensions from previous employers.
- Some self-invested personal pensions (SIPPs), depending on charges and investment options.
These pensions are based on contributions and investment performance. If a newer pension offers lower charges or better value, transferring may be worth considering.
Which Pensions Should You Check Very Carefully?
Some pensions include valuable benefits that could be lost if transferred.
Final Salary (Defined Benefit) Pensions
These provide a guaranteed retirement income based on salary and years of service. They are often among the most valuable, and most people are likely to be better off keeping them unless specialist advice suggests otherwise.
Pensions with Guaranteed Annuity Rates
Some older pensions promise a higher level of retirement income than can be bought today. Those guarantees may disappear if you transfer.
With-Profits Pensions
Older with-profits pensions can include valuable terminal bonuses that may be reduced or lost if you move the money.
Protected Pension Age
Some older schemes allow you to take your pension earlier than current rules normally allow. A transfer could mean losing that protection.
Enhanced Tax-Free Cash
Certain historic pensions allow more than the standard 25% tax-free lump sum. Moving the pension could remove this entitlement.
Workplace Pensions with Added Benefits
Some employer schemes include life insurance or ill-health benefits that don't automatically transfer.
One Group Should Be Especially Careful
If you have a pension worth less than £10,000, don't automatically assume you should combine it. Keeping a small pension separate can sometimes be more tax efficient under the pension "small pots" rules.
Five Checks Before Transferring Any Pension
Before moving any pension, make sure you know:
- What annual charges you're paying.
- Whether there are exit fees.
- If you'll lose guarantees or protected benefits.
- Whether the new pension offers better value.
- How the transfer fits into your long-term retirement plans.
Before You Make Any Decision
Take time to understand exactly what each pension offers before transferring. If unsure, consider free guidance from MoneyHelper or speak to a regulated financial adviser, especially for final salary pensions or schemes with valuable guarantees.
Having several pension pots isn't a problem in itself. The real issue is not knowing what you've got. For many people, consolidating straightforward defined contribution pensions can make retirement planning simpler and may reduce charges. But don't assume every pension belongs in the same place—some older schemes are valuable because of hidden guarantees.
