Personal pensions

Should I combine my pensions?

By Paul Davies

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Should I combine my pensions?

Learn about the benefits of combining your pensions, and gain an understanding of what you should do when you move jobs.

When to transfer your old pensions and when not to

If you've accumulated numerous workplace pensions over the years from different employers, it can be difficult to keep track of how they are performing. There is a danger that long-forgotten plans will end up festering in expensive, poorly performing funds, and the paperwork alone can be enough to put you off becoming more proactive.

So, is transferring everything into one easy-to-manage pension the way to go? There are advantages to switching your pensions but there are also pitfalls. The best course of action will depend on what kinds of pension you have and how long you have until retirement.

Consolidating pensions when you move from job to job

Making the most of your pensions now could have a significant impact on your happiness in retirement; getting it right could mean a higher income, or even an earlier retirement date.

If you’re lucky enough to be in a final salary scheme, it will almost always make sense to stay put. But if you have any other type of pension – where success or failure depends on the performance of your investments - consolidation is worth considering. 

The impact of high charges on your pension schemes

The negative effect of high charges and poor fund performance should not be underestimated. 

If a 35-year-old with a £10,000 pension pot invests until 65 in a fund that achieves 5% annual investment growth, but charges 2% a year, the pot will be worth £23,720. 

The same £10,000 invested in a fund that achieves 7% annual investment growth, with a 1.5% annual charge, will be worth £48,541 – more than double. A better return will never be guaranteed, but more investment choice and lower fees will give you the best chance of achieving one.

If you’re interested in consolidating, a personal pension, such as a self-invested personal pension (Sipp), can provide a huge amount of investment choice at a relatively low cost.

And if you’re not comfortable tackling big decisions on your own, an independent financial adviser can help. They will charge a fee, but if you value the advice, you have plenty of time until retirement for your new investments to recoup the cost.

Consolidating pensions in your 50s or 60s

As you get nearer to retirement, your pension pots should have appreciated significantly, and you may decide that any exit penalties or fees for advice represent significant disincentives to act – after all, you will have less time to recoup the cost before retirement. 

But if you’re unhappy with your existing arrangements, and your funds are letting you down, it could still make sense to consolidate. You may still have 10 or 15 years to go, and transferring now gives you the added benefit of having all your money in one place for the purpose of buying an annuity or putting your money into income drawdown.

The Which? Money Helpline has a team of qualified experts that can help with your questions on consolidating your pension. Sign up to a £1 trial with Which? and speak to one of our experts. 

  • Last updated: March 2016
  • Updated by: Paul Davies