Pros and cons of pension consolidation

Retirement planning often spans decades and includes various job changes, each potentially introducing a new pension policy. This could result in a complex mix of policies, fees and investment strategies. In fact, frequent job changes and automatic enrolment have contributed to a growing issue in the UK: lost or forgotten pension pots. 

According to the Pensions Policy Institute, there are now 3.3 million lost pension pots holding a combined £31.1 billion in unclaimed assets. This is a sharp rise from 1.6 million pots worth £19.4 billion in 2018. The average value of a lost pot is £9,470, rising to £13,620 for those aged 55–75.

This trend highlights the importance of keeping track of your pension savings and considering speaking to a financial adviser as a way to reduce the risk of losing valuable retirement funds.

Pension consolidation involves combining multiple pension pots into a single plan. This can simplify management, potentially reduce fees, and provide better visibility of your retirement savings.

While pension consolidation may be relatively straightforward for some, it may be more complex for those with defined benefit (DB) schemes. Unlike defined contribution pensions, DB schemes are based on your salary and length of service, rather than the value of your pension pot. Please note that SPW does not offer advice on defined benefit schemes.

Consolidation may not be suitable for everyone. Factors such as exit fees, investment performance, or the potential loss of valuable benefits must be considered before proceeding.

• Potential cost savings – Consolidation can reduce the total fees paid across multiple pension providers, potentially increasing long-term savings.
• Simplified management – Managing one pension fund is easier and less time-consuming than handling multiple accounts.
• Reduced risk of losing pensions – Consolidation lowers the chance of losing track of dormant or forgotten pension pots.
• Improved investment oversight – A consolidated pension provides a clear single view of your investment strategy and alignment with personal goals.
• Access to flexible retirement options – Newer pension plans may offer flexible withdrawal options not available in older schemes.

• Exit fees – Some providers charge fees for transferring out, which can negate the benefits of consolidation.
• Loss of valuable benefits – Defined benefits such as guaranteed annuity rates or protected tax-free cash may be forfeited upon consolidation.
• Loss of employer contributions – Consolidating outside of a workplace scheme may result in losing employer-matched contributions.

Partial consolidation allows you to merge some pensions while retaining others. This can help preserve specific benefits or investment strategies while simplifying part of your portfolio.

Pension consolidation can offer significant advantages but also comes with risks. The decision should be based on individual circumstances and financial goals.

Consulting a financial adviser can help determine the best approach. At Schroders Personal Wealth, regular reviews with an adviser are a key principle to ensure optimal use of pension savings.

This article is for information purposes only. It is not intended as investment advice.

Fees and charges apply at Schroders Personal Wealth.

The retirement benefits you receive from your pension plan depend on a number of factors including the value of your plan when you decide to take your benefits which isn’t guaranteed and can go down as well as up. The benefits of your plan could fall below the amount(s) paid in.

In preparing this article we have used third party sources which we believe to be true and accurate as at the date of writing but can give no assurances or warranty regarding the accuracy, currency or applicability of any of the contents in relation to specific situations and particular circumstances.

Any views expressed are our in-house views as at the time of publishing. This content may not be used, copied, quoted circulated or otherwise disclosed (in whole or in part) without prior written consent.