Should You Consolidate, Combine & Amalgamate Your Old Pensions?

With each person in the UK having an estimated £9,500 in pension pots they may have forgotten about, spread across up to 11 pensions on average from previous employers. It makes sense to consolidate all of these into one.

There are some significant cost-saving benefits that can increase your retirement pot, also disadvantages. In this guide to pension consolidation, we look at if you should combine all your pensions into one, how to track down old pensions, which companies offer pension consolidation services and if and when it is a good idea.

According to The Pensions Regulator, over £8.5bn was transferred into defined contribution pensions (where both individuals and employers pay in), compared to only £3.7bn the year before. This is great news because it means more people are taking an active interest in their savings and investing and being more prepared for retirement.

But, there are pros and and cons to consolidating your old pensions. Here we break them down:

Advantages of Pension Consolidation:

Simplicity: Having all your pensions in one place makes it easier to keep track of your savings and plan for your retirement more effectively. For example, I have a pension with AEGON from a previous employer, and every time I want to check it, they have to send me a letter to log into my account. It is very frustrating and time-consuming.

This should be made easier when the UK government “Pensions Dashboard” launches in 2025, where you can see, based on your National Insurance number, where all your pensions are held. But for now, some pension providers offer an almost archaic approach to accessing your pension information.

Reducing Fees: Older and forgotten pensions quite often have very high fees for doing very little. For instance, firms like Wealthify, Nutmeg and Moneyfarm offer private pensions for as little as 0.6% a year, where as traditional pension providers can charge upwards of 1.5% a year. By switching to a lower cost pension you can significantly increase the amount of money you have in your retirement, whilst still invested in the same markets and products.

For example, if your pension returns 7% a year (the UK average) and you pay in the max contribution of £60,000 a year for 25 years, the difference in a provider charging you 0.6% versus 1.5% is a staggering £468,393. Not amalgamating old expansion pensions can cost you hundreds of thousands of pounds.

Better Investment Options: They do say when it comes to saving that you should never place all your eggs in one basket and that diversification, diversification and diversification are the cornerstones of investing. But when it comes to pension providers, this may not be the case.

Yes, it is important to spread your risk across asset classes and risk, and most private pension providers will offer a range of portfolios from lower risk, where you are investing in a small number of equities and more bonds and a more aggressive type with more stocks and shares. You can use one provider to spread your risk among different portfolios. A single, well-performing pension plan could offer more or better investment choices compared to others compared to a pension that just invests in one region.

Flexibility: Older pensions suffer from legacy systems, but new pension providers like PensionBee and Penfold Pensions offer a very easy-to-use website and app that is backed up by excellent customer support. This can reduce the need for a wealth manager to help with withdrawing money from your pension.

Control: If you are a very confident investor and think you can do better than managed pension funds you can choose to decide exactly what bonds, stocks and funds to buy for your pension with a SIPP. A SIPP is a self-invested personal pension where you make the investment decisions yourself. They are offer considerably cheaper than even the cheapest managed pensions.

For instance, AJ Bell charges 0.25%, Hargreaves Lansdown charges 0.45% and Interactive Investor charges £5.99 a month. You can either replicate the portfolio of your managed pension or pick and choose what you invest in yourself. But, the other costs to consider are the commission for each trade you place and the risk of potentially making bad investment decisions, where you can lose money.

Disadvantages of Pension Consolidation:

Loss of Benefits: Some older pensions might have valuable features, like guaranteed annuity rates or lower retirement ages, which could be lost if you transfer them. Before you move a pension with extra benefits you will have to consult an IFA, but if you get bad advice, you can end up losing these benefits which could cost you a huge amount of money when you come to retire.

For example, Members of the British Steel Pension Scheme (BSPS) lost several key benefits by transferring out of their defined benefit (DB) pensions including some guaranteed income for life, inflation protection and some benefits for spouses and children. The average loss per person due to the bad advice given here was estimated by the FCA to be around £82,600 per person.

Exit Fees: These are not so common these days but are the scourge of the pensions industry. Some expensive pension providers manage to essentially hold people’s pensions hostage by charging high fees of up to 5% if you want to move your pension to another provider. Some pension providers charge high fees to transfer funds out of their schemes, which can reduce the value of your pension pot.

However, the FCA has now placed a cap on exit fees of 1%, but big name pension providers that used to charge high fees like Scottish Widows and Aviva have now scrapped exit fees altogether. Whereas more modern providers like Moneybox and Wealthify have never had exit fees.

Tax Considerations: If you have a pension that offers tax advantages or benefits, consolidating might impact those perks. Tax is a tricky subject, and everyone is different here. So it’s really important to check your individual circumstances with your tax advisor before making any changes that could affect your tax position.

Providers With Pension Consolidation Services

The below pension providers offer in-house services that can help you track down old pensions which you can then consolidate into one on their platform. They offer these services for free in the hope that you will move your pension to their platform.

Moneybox

Pension Finder: This service from MoneyBox lets you to search for old pensions that you might have lost track of through job changes. Once located, you can consolidate them into a Moneybox pension.

Penfold

Find My Pension: With Penfold you just need to enter a previous employer’s name and their extensive pension database can find the pension provider in the same search result.

PensionBee

Find and Combine: PensionBee specializes in helping you track down old pensions and consolidate them into one easily manageable plan. They use basic details like your previous employer’s name to locate lost pensions.

GOV.UK

You can also use the government’s pension tracing service to find contact details of old workplace pension providers. But, it will not be able to tell you if you have a pension with them or how much is in it. This should be replaced by the UK Pensions Dashboard, which will provide a comprehensive view of your pension accounts.