Most of us change jobs several times over a working life — and nearly every job leaves a pension pot behind. Add in the odd personal pension started years ago, and it is common to arrive at retirement with four, five or more separate pots, some long forgotten. So should you bring them all together? Sometimes yes, sometimes emphatically no — and the difference lies in details that are easy to miss.
The case for consolidating
Combining pensions can genuinely simplify your financial life. One pot means one statement, one login, one investment strategy and one set of paperwork at retirement. It can reduce charges, since some older pensions carry fees far higher than modern equivalents. It makes planning easier, because you can see exactly what you have and whether it is on track. And it can widen your options — some older schemes offer limited investment choice or restricted access to the flexible retirement options available today.
The pitfalls that catch people out
The danger is that some older pensions contain valuable benefits that are lost forever on transfer. The most important examples include guaranteed annuity rates — some older policies promise to convert your pot into income at rates far better than anything available on the open market today; protected tax-free cash entitlements above the standard amount; protected early retirement ages; and loyalty bonuses or with-profits terminal bonuses that only pay out if you stay. Exit penalties can also apply. None of these are obvious from a glance at a statement — they hide in scheme documentation that most people have never read.
Defined benefit (final salary) pensions are a different matter altogether: they promise a guaranteed income for life, and transferring out is rarely in most people’s interests. Regulated advice is legally required for defined benefit transfers over £30,000 — a safeguard that exists precisely because the guarantees being given up are so valuable.
The sensible order of events
Before moving anything, the right first step is a proper review: track down every pot (the government’s Pension Tracing Service can help find lost ones), request up-to-date statements, and establish what each pension is worth, what it charges, how it is invested and — crucially — what guarantees or protections it contains. Only then can a sensible decision be made about which pots, if any, should be combined, and where.
This is exactly what our pension advice service does. Our independent advisers review each of your pensions individually, flag any valuable benefits before you risk losing them, and give you a clear personal recommendation — including, where it is the right answer, a recommendation to leave things exactly where they are.
This article is for general information only and does not constitute advice. Transferring a pension is not right for everyone, and valuable guarantees or benefits may be lost on transfer. Regulated advice is required by law for transfers from defined benefit schemes valued over £30,000. The value of investments can go down as well as up and is not guaranteed. Tax treatment depends on your individual circumstances and may change. Our advised services are provided on a fully advised basis by FCA-regulated advisers. Retirement Professionals Ltd is an appointed representative of pi financial ltd, authorised and regulated by the Financial Conduct Authority. FCA number 622943.