A Guide to Pension Consolidation

If you've had more than one job, you likely have more than one pension pot. In fact, it's not uncommon for people to have five, ten, or even more small pensions scattered with different providers, all with different charges, investments, and paperwork.

Pension consolidation is the process of combining some or all of these pots into one single, manageable plan. While this can offer fantastic benefits, it's an irreversible decision that comes with significant risks.

Here, we'll cover the pros and cons of pension consolidation and how an independent financial adviser can help you decide if it's the right move for you.

What is pension consolidation?

Pension consolidation is the formal term for transferring one or more of your pension pots into a single, chosen pension scheme.

This is typically done with defined contribution (DC) 'pension pots'. You may choose to move several old pensions into one of your existing schemes (like your current workplace pension) or move them all into a new, separate plan (like a SIPP, or Self-Invested Personal Pension).

The goal is to simplify your finances, giving you a clear, single view of your total retirement savings. However, it is not a simple administrative task; it's a financial decision that requires careful analysis.

The potential benefits of consolidating pensions

When done for the right reasons and after the proper checks, consolidation can be a very smart move.

• Simplicity and clarity: This is the biggest driver. Instead of juggling multiple statements, logins, and providers, you have just one. It's far easier to see a single, clear figure for your total retirement savings.

• Easier to manage: With one plan, you have only one set of paperwork, one point of contact, and one investment strategy to review.

• Potentially lower fees: Many older pension plans (especially from the 80s, 90s, and 00s) have high annual management charges. These fees can seriously drag down your long-term growth. A modern plan may be significantly cheaper, allowing more of your money to work for you.

• More investment choice: Older schemes often have a very limited, outdated, or poorly performing range of investment funds. Consolidating can give you access to a much wider, modern universe of funds, including sustainable or ethical options.

• More flexible retirement options: Many old pension contracts do not offer modern 'pension freedoms' like flexi-access drawdown. Consolidating to a new plan can unlock these flexible ways of taking your money.

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The risks: What you could lose

Consolidation is not right for everyone, and it is crucial to check what you might be giving up. Once you transfer, you can almost never go back.

An adviser's most important job is to check for these risks before you move.

• Loss of valuable guarantees: This is the number one risk. Some older pensions contain extremely valuable benefits that are far better than anything available today. If you transfer, you lose them forever.

  • Guaranteed Annuity Rates (GARs): These are the most common. A GAR might promise you an annuity rate of 9-11% when you retire. Today's open market rates might be 5-6%. Giving this up could cost you thousands of pounds every year in retirement.

  • Protected Tax-Free Cash: Most pensions let you take 25% of your pot as tax-free cash. Some older schemes, however, allow you to take a higher protected percentage, sometimes 50% or more. This is a very valuable tax benefit.

• Loss of defined benefit (DB) pensions: A 'final salary' or 'career average' pension is completely different. It provides a guaranteed income for life, not a 'pot' of money. Transferring this is a high-risk decision, and for most people, it is not the right choice.

• High exit fees: Some old providers charge a penalty or 'exit fee' for transferring away, which could wipe out any benefit of moving.

• Loss of protected retirement age: Some occupations or older schemes have a 'protected retirement age' that allows you to access your pension at 50 or 55, earlier than the normal minimum pension age (which is 57 from 2028).

How our independent advisers can help with pension consolidation

It is possible to consolidate pensions yourself. However, you are then solely responsible for checking the small print and risk making a costly mistake.

The main role of our independent advisers is to act as your expert guide, helping you navigate the minefield and ensuring you only move your pensions if it's in your best financial interests.

Here is how we can help:

1. The "Detective Work"

You may have pensions you've forgotten about. We can help you trace all your old workplace and personal pension pots, so you know exactly what you have and where it is.

2. The "In-Depth Analysis"

This is the most critical step. We will contact every one of your pension providers to get the full details of your plans. We will specifically analyse the small print for:

• Any Guaranteed Annuity Rates (GARs) or other guarantees.

• Any protected tax-free cash entitlements.

• Any exit fees or transfer penalties.

• The current annual charges and investment performance.

3. A Clear Cost-Benefit Report

We will compare the charges and performance of your old plans against a recommended new plan. We will then provide a clear, written report showing you, in pounds and pence, the impact of any fees and, crucially, the value of any benefits you would be giving up.

4. A Personal Recommendation

Consolidation is not an all-or-nothing decision. Our advice might be to:

• Move Pots A, B, and D.

• Leave Pot C where it is because it has a valuable guarantee.

• Do not move Pot E because it's a Defined Benefit scheme and staying in it is best for you.

5. Hassle-Free Implementation

If you decide to go ahead, we manage the entire process for you. We will handle all the complex transfer paperwork with the multiple providers, ensuring the process is completed as smoothly and quickly as possible.

6. A Future-Proof Investment Strategy

Once your pensions are consolidated, we don't just leave you in a default fund. We will work with you to create a proper investment strategy for your new, larger pot, ensuring it is aligned with your goals and your attitude to risk.

Get started here to book a free pension review and a non-obligation chat with an independent financial adviser who specialises in pension consolidation.