British workers move jobs an average 11 times during their working lives and often leave a small pension pot behind.
The chances are these are likely to be defined contribution pensions that come without any guarantees and fund sizes depend on investment performance.
This is also likely to mean they come at a price – the fund and administration charges of keeping the pensions running.
Dealing with several providers can be time-consuming and expensive, so consolidation – putting all the pots into a single fund – can be a good idea.
But before deciding, here are some of the main pros and cons to think about.
For pension consolidation
- Several pensions in the same place are easier to manage
- Larger funds can attract cheaper management and administration charges
- Some pensions can offer more flexible investment choices – such as SIPPs in the UK and offshore QROPS for expats living permanently abroad
- Smaller workplace schemes and older defined contribution schemes may not offer pension freedoms and tie up cash until the retirement saver is 60 or 65 years old instead of access to the entire fund at the age of 55
- Some workplace schemes may struggle to meet their pension promises to employees and end up in protection paying reduced benefits
Against pension consolidation
- Moving funds into a modern pension could mean giving up guaranteed retirement income, cost of living increases and benefits for spouses
- Pensions totalling less than £10,000 may have special pension freedom drawdown options that they lose when pulled into a single fund
- Older pension plans may have costly early repayment penalties
- If the total consolidated funds add up to £30,000 or more, it’s compulsory to take pension guidance before contemplating a transfer – and consulting an independent financial adviser can come at a price as well
Costs and benefits
The final decision about whether to consolidate several small pensions comes down to checking off the costs and benefits of a new pension against what the old schemes offer.
Also remember to pick the best time the move. If pension investments must be sold before the transfer and the market shifts, consider how much the gains or losses might be.
Consolidation is not right for everyone and individual factors will decide if the move is worthwhile for everyone.