What are the pros and cons of pension consolidation?


Hands holding a nest full of eggsIn the modern economy, it’s normal to have several jobs over the course of your lifetime. However, this can lead to an issue that many people don’t often think about. If you have several workplace pensions, it can be very easy to lose track of them.

According to a 2020 study, published by Unbiased, there are around 1.6 million “lost” pension pots in the UK, with a combined valued of £19.4 billion. This is a significant amount of wealth that could otherwise be used to provide people with a comfortable retirement.

One solution to this is to consolidate your workplace pensions, though with this there can be a lot to think about. If you’re considering pension consolidation, read on to find out the pros and cons.

The government offers a free service for tracking down old pensions

As you may know, 31 October is National Pension Tracing Day and so, if you think you may have funds that you’ve forgotten about, there’s never been a better time than now to find them. Even if they aren’t large, when it comes to building wealth for retirement, every little helps.

You can use the government’s free website to track down any workplace pension funds that you may have lost over the years.

If you want to make sure all of your pensions are working hard for you, one option you have is to consolidate them into a smaller number of funds. Here are the pros and cons of doing so.


Consolidating can make them easier to track

As you might imagine, the main benefit of consolidating your pension pots is that it’s easier to keep track of a smaller number of funds. This can help to ensure that they’re growing your wealth as effectively as possible.

Furthermore, it can also make the process of managing them much easier. If you have a large number of workplace pensions, you may have to deal with a considerable amount of paperwork.

With a few consolidated pots, you would only have to review a small number of statements to see your full fund.

You could increase the size of your fund

Since it is difficult to keep track of several different pensions, you may lose track of them over time. Even if you haven’t forgotten them, it can also be easy to leave a portion of your wealth languishing in a scheme with poor returns, or with an administrator who charges a higher-than-average fee.

If you want to be able to enjoy a comfortable retirement, it’s important that your wealth is working hard for you. Poor returns or high charges can mean that your contributions aren’t growing as effectively as they could in the long term.

For example, older pensions typically have higher charges than modern ones, which can eat away at your wealth.

Once you’ve analysed your various pension schemes, you can assess which one has the strongest performance or has the lowest charges. Once you know this, you can multiply the benefits by consolidating several pensions into this one fund.

You could have a greater degree of control

Another benefit of consolidating your pensions is that modern funds typically give you a greater degree of choice with where your money is invested. If you transfer wealth out of older funds, you may be able to exercise a greater degree of control.

However, it’s important to be careful when choosing your own investments so if you do want to, you may benefit from seeking professional advice first.


You could lose benefits from your existing pension schemes

One of the most important issues to bear in mind before consolidating any of your pensions is that some schemes have added benefits that you can only access if you remain a member of them until retirement.

For instance, a pension scheme may be able to give you a guaranteed annuity with favourable rates, but only if you don’t transfer any of the fund elsewhere.

You could have to pay transfer fees

In some cases, though not all, you may have to pay a fee in order to transfer your pension to another scheme. If you have a several pensions, this could quickly add up to a large amount of money.

If this is the case, you would need to weigh up the long-term benefits of consolidation with the cost of doing so. If you aren’t sure whether such a transfer would be worth it, you may benefit from seeking professional advice to be able to make the decision with confidence.

Get in touch

If you want to know more about whether pension consolidation is right for you, we can help. Please email info@investmentsense.co.uk or call 0115 933 8433.

Please note

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.