Work for four or five companies during your career and you can quite easily arrive in your fifties with several different pension pots sitting with several different providers. The important question is not whether you can combine them — it is whether you would actually be better off if you did.
Changing jobs has a habit of leaving things behind.
Old security passes.
People you promised you would definitely keep in touch with.
And, increasingly, workplace pensions.
Work for four or five companies during your career and you can quite easily arrive in your fifties with several different pension pots sitting with several different providers.
That leads to a question I hear regularly:
"Steve, should I just combine all my old pensions into one?"
I completely understand why people ask.
One pension.
One statement.
One login.
One place to see what you have.
Lovely.
Unfortunately, pensions are rarely quite that simple.
The important question is not:
"Can I combine my pensions?"
It is:
"Would I actually be better off if I did?"
Why do people consider combining pensions?
The most obvious reason is convenience.
If you have pensions scattered across several providers, keeping track of them can become a pain.
You may have different passwords, different statements, different investment funds and different retirement dates recorded with each company.
One provider still has the address you lived at in 2007.
Another sends emails to an account you barely remember owning.
Another pension is somewhere in a drawer underneath the instruction manual for a toaster you threw away six years ago.
Bringing pensions together can potentially make them easier to manage and give you a clearer view of your retirement savings.
Our Open Door Wealth Foundation also highlights administration, charges, investment strategy and retirement planning as common reasons people consider consolidation.
But convenience is only one side of the decision.
Before moving anything, understand what you already have
This is the bit I would always start with.
At Open Door Wealth, if somebody tells me:
"I've got four pensions and I want to combine them,"
my first question is:
"Why?"
Not because combining pensions is necessarily a bad idea.
It is because moving tens of thousands of pounds simply because the paperwork looks untidy is not enough of a reason on its own.
Before considering a transfer, I would want to understand each pension.
Who provides it?
What type of pension is it?
What is it worth?
What are the charges?
Where is it invested?
What retirement options does it provide?
Does it contain guarantees or protected benefits?
Once you know those things, you can compare pensions properly rather than simply comparing the number of envelopes arriving through the letterbox.
Could combining pensions save money?
Potentially.
Different pensions can have different charges.
You may find an older pension is relatively expensive compared with another suitable arrangement.
But the cheapest pension is not automatically the best pension.
Imagine one pension charges slightly more but provides investment choices, retirement flexibility or valuable benefits that another does not.
Looking only at cost could mean missing something much more important.
That is why charges should be part of the comparison rather than the entire comparison.
As I often say:
Tidier paperwork is nice. A better retirement outcome is more important.
What could I lose by transferring a pension?
This is where people need to be particularly careful.
Some older pensions contain features which could be lost permanently if the pension is transferred.
Depending on the arrangement, these could include valuable guarantees, protected pension ages, protected tax free cash rights, guaranteed annuity rates or other scheme benefits.
Government guidance confirms that safeguarded pension benefits can contain valuable guarantees that are surrendered if certain transfers or conversions take place. In some cases, where safeguarded benefits are worth more than £30,000, regulated independent advice is required before a transfer to flexible benefits can proceed.
That does not mean an old pension should never be transferred.
It means you should know what you are giving up before deciding what you might gain.
You can explore this further in our Knowledge Hub guide on checking before transferring a pension.
What about final salary pensions?
Defined benefit pensions need particular care.
These are fundamentally different from an ordinary pension pot.
Instead of simply holding an investment value, a defined benefit pension may promise an income based on the rules of the scheme.
That income may include guarantees, increases and benefits for a spouse or dependant.
Moving away from one can mean exchanging those promises for an investment based pension where you take on more responsibility for future investment performance and retirement income.
So if you are looking at several pensions, do not simply treat a defined benefit pension as another pot that needs tidying up.
It deserves separate consideration.
Our Knowledge Hub guide on whether to transfer a final salary pension explains the key considerations in more detail.
Is having several pensions actually a problem?
Not necessarily.
There is nothing inherently wrong with reaching retirement with several pensions.
Different arrangements can potentially do different jobs.
Your current workplace pension may still be receiving employer contributions.
An older pension might contain valuable guarantees.
Another might offer useful retirement flexibility.
The issue is not really:
"How many pensions have I got?"
It is:
"Do I understand them?"
Having five pensions that you understand and deliberately retain could be perfectly sensible.
Having five pensions you have completely forgotten about is rather different.
Look at the investments as well as the pension providers
Another reason consolidation comes up is investment management.
Imagine you have four pensions.
One is invested in a default fund.
Another is using a lifestyle strategy.
A third contains investments you selected fifteen years ago.
And you cannot remember what the fourth one is doing.
Individually, each arrangement might be reasonable.
Collectively, however, they may not create the investment strategy you thought you had.
This is why one of the more useful questions is:
"How is all of my retirement money invested overall?"
You can answer that question whether you eventually combine the pensions or leave every one exactly where it is.
For more on how workplace pension investments work, see our Knowledge Hub guide on how workplace pension investments work.
Retirement is where the bigger picture becomes important
As retirement gets closer, the conversation changes.
Instead of simply asking how much each pension is worth, you start asking:
When can I access them?
What income could they provide?
Which pensions offer flexible access?
Do any contain guaranteed income?
How does everything fit alongside my State Pension, savings and investments?
That is retirement planning.
The pension accounts themselves are simply ingredients.
The important bit is understanding what meal you are trying to make.
And yes, I appreciate that I have somehow managed to turn pensions into a cooking analogy.
So, should you combine your pensions?
Maybe.
For some people, combining certain pensions could make administration easier, simplify investment management or improve the way their retirement arrangements work together.
For somebody else, transferring could mean giving up valuable benefits that would have been better left alone.
And sometimes the sensible answer may be somewhere in the middle.
You could potentially combine some pensions while deliberately leaving another untouched.
The starting point should therefore be:
1. Find every pension.
2. Understand what type each one is.
3. Check its value or benefits.
4. Understand its investments.
5. Check the charges.
6. Identify guarantees and protections.
7. Compare retirement options.
8. Only then consider whether transferring solves a genuine problem.
The simplest way I can put it is:
"Don't start by asking where you should move your pensions. Start by understanding what you've already got."
That one question can prevent an awful lot of expensive tidying up.
Learn more
If you have accumulated several pensions from previous employers, explore the Open Door Wealth Knowledge Hub guides on workplace pensions, pension transfers and retirement planning.
Understanding your pensions does not automatically mean changing them.
Sometimes the most useful outcome of a review is discovering that something you already own is worth keeping.
Important information
This article provides general information only and does not constitute personal financial, pension, investment or tax advice.
Pension transfers are not suitable for everyone. Transferring may result in the loss of guarantees, protected benefits, investment features or retirement options. Defined benefit and other safeguarded pension arrangements require particular care, and regulated advice may be required in certain circumstances.
Pension and investment values can fall as well as rise. Tax treatment and pension rules depend on individual circumstances and may change.
Written by Steven Ralph, Financial Adviser, Open Door Wealth
Steve Ralph
Financial Adviser