12 Feb 2021
Should I consolidate my pensions into one plan?
The average person has 11 different jobs over their lifetime, so they are likely to accumulate several pension plans.
These can be difficult to keep track of - and some may be better value than others.
Consolidating your pensions can be a great way to regain control and save money on fees. However, there a number of things you should consider first
Benefits of consolidation
1) Easier to keep track: It can be easy to lose track of multiple pensions, so consolidating them into one place can make sense. It will also give you a clearer picture of your overall pension wealth. You will also have less paperwork to deal with.
2) Lower fees: Consolidating your plans is a good opportunity to check what charges you are paying and make sure you aren't paying more than you should.
3) More suitable investments: If you have pensions which offer limited investment options or don't allow you to invest in a way that reflects your values, then it might make sense to switch to somewhere with options that suit your individual circumstances.
4) More options at retirement: You might find your old pension doesn't offer you the retirement-income options you want, so it may make sense to consolidate with a provider that offers what you need. Similarly, if you wanted to purchase an annuity with your pension, then you could get a better retirement income with one larger plan rather than several smaller ones.
Things to be aware of before consolidating
1) You may incur exit penalties: While modern pension plans can usually be merged without charge, some older ones may have exit charges attached. These can be significant depending on the of your fund.
2) You could lose valuable benefits: Some older style pensions entitle you to take more than the standard 25% in tax-free cash. Others might allow you to take your pension earlier than the usual age of 55, or come with a guaranteed annuity rate. If you're in the first category, it means your provider will guarantee to pay you a minimum level of income for the rest of your life, in return for your retirement savings.
3) There are advantages to having small pensions: You can cash in small pensions of less than £10,000 (known as trivial pots) and still continue to pay into another pension up to the annual allowance of £40,000.
Independent financial advice
Consolidating pensions can save you money, time and give you more options at retirement.
However, there are potential pitfalls that could cost you dearly if you aren't aware of them. There is no one-size-fits-all, so taking financial advice will help you navigate the pitfalls - giving you the best retirement outcome for your individual circumstances.
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