Multiple Pension Pots? Maximise their power now, for a stronger financial future

More than three million pension pots – worth at least £18.7bn – are currently classed as ‘lost’ in the UK, according to the Pensions Policy Institute’s latest research. Most belong to people who changed jobs or moved house and lost the paper trail.

If you have worked for a few employers, you will likely have a pot or two like that of your own. Finding them is the first step. Whilst we’re often told that consolidating our finances is a highly beneficial approach, deciding whether to combine your pension pots is a decision that requires consideration.

Why people consolidate

• Everything in one place. One statement, one login, one set of paperwork. Keeping track of five pots with five providers is a chore, and chores get put off. A single pot is easier to review, which makes you more likely to actually review it.
• A clearer view of your retirement. When your savings are scattered, it is hard to say what you will have, or whether you are on course. Seeing one total makes planning far more straightforward.
• Potentially lower charges. Older plans can carry higher annual charges than modern ones, and several small pots can mean several sets of fees. Moving to a single, lower-cost arrangement could mean more of your money stays invested. Even a small difference in charges, compounded over years, can add up.
• Better control of your investments. Different pots may be invested in very different ways, some of them years out of date. Combining them lets you look at your overall mix of investments and make sure it still suits your age and plans.
• Simpler choices at retirement. Drawing an income from one pot is generally easier than coordinating several.

Check your policies before you take action

Consolidation is not automatically the sensible move, and some pensions should not be transferred. Examples include:

• Guarantees and protections. Some older pensions come with valuable features that modern plans rarely match. These can include a guaranteed annuity rate, which promises a set income at retirement, or the right to take more than the usual 25% tax-free cash. Some plans also allow you to access your pension at an earlier age. Once you transfer, these benefits are usually gone for good.
• Final salary (defined benefit) pensions. These pay a guaranteed income for life and are often worth far more than their transfer value suggests. Giving one up is rarely wise, and if the benefits are worth more than £30,000 you must take regulated advice before you can transfer.
• Exit charges and penalties. Some providers charge to let you leave. With-profits funds can apply a market value reduction, which could shrink your pot on the way out.
• Losing employer contributions. If your current workplace scheme is attractive, moving money out of it should not mean missing out on what your employer pays in.
• A worse home for your money. A new provider may be cheaper but offer weaker investment options, or have a poorer track record. Lower charges are only a gain if the rest of the package stands up.

What to check first

Before you move anything, gather the facts on each pot:

• What it is worth today, and how it is invested
• The annual charges, and any exit fees
• Any guarantees, protected tax-free cash or early access rights
• Whether it is a defined contribution or defined benefit scheme
• How the receiving plan compares on cost, choice and service

If you are missing paperwork, the free Pension Tracing Service on GOV.UK can help you find old schemes. Be wary of cold calls offering to track down pensions for you, as these are a common route for scams.

Where your KGJ adviser comes in

Weighing all this up is not easy, particularly when the valuable details sit in the small print of plans written decades ago. Our financial advisers can obtain the full picture on each pension, flag any guarantees you would be giving up, and compare your options against your retirement goals and attitude to risk. Crucially, they can tell you which pots are worth combining, which are best left where they are, and which you should never touch.
Sometimes the answer is to combine everything. Sometimes it is to combine two out of five. Occasionally it is to do nothing at all, and that is a perfectly good outcome if it is the right one.

Get in touch with us today to arrange a conversation with one of our advisers.

Pension rules and tax treatment depend on individual circumstances and may change. The value of investments can fall as well as rise, and you may get back less than you put in. This article is for general information and is not personal advice. Some of our services are chargeable – we will always explain and agree any fees before providing paid-for services.