When Should You Consolidate Your Pension Pots?

If you’ve worked for a few different employers or opened personal pensions over the years, you might find yourself juggling several pension pots. It can feel a bit untidy—and that’s where pension consolidation comes in.

Bringing your pensions together into a single scheme could make life easier, cut down on fees, and help you stay in control of your retirement planning. But consolidation isn’t right for everyone, especially if you’re close to retiring.

In this guide, we’ll walk through the benefits, potential downsides, and how to decide if it’s the right step for you.

What Is Pension Consolidation?

Pension consolidation means merging two or more pension pots into one plan, usually with a single provider. It’s commonly used by people who have built up several pensions over the years—perhaps from different employers or a mix of workplace and personal schemes.

You can often move your pension pots into an existing scheme or open a new one specifically for consolidation.

Which Pensions Can Be Consolidated?

Most people consider consolidation for defined contribution pensions, which are sometimes called money purchase pensions. These include:

• Workplace pensions from current or past employers
• Personal pensions you’ve opened yourself, such as stakeholder pensions or SIPPs

Keep in mind that not all providers allow transfers out. If you’re unsure, check with your current pension scheme.

What About Final Salary (Defined Benefit) Schemes?

Defined benefit schemes work differently. They promise a guaranteed income for life, often based on your salary and length of service.

Although it’s sometimes possible to transfer out of a final salary scheme into a defined contribution plan, this is a big decision. You would lose valuable features like inflation protection and guaranteed income.

In fact, if the value of your defined benefit scheme is over £30,000, it’s a legal requirement to seek independent financial advice before transferring. It’s also essential to stay alert to pension scams—always check any company or adviser is authorised by the Financial Conduct Authority.

When Might You Consolidate Pension Pots?

There are two main ways to approach consolidation:

Moving Into an Existing Pension Plan

If one of your existing schemes is well-managed, has low fees, and offers the investment options you’re happy with, you may choose to bring your other pensions into that plan.

This is a practical option if you already have confidence in the scheme and how it’s performing.

Moving Into a New Pension Plan

You might decide to move all your pots into a new plan altogether—especially if your current pensions aren’t meeting your needs.

A range of providers now offer consolidation services, including major names like Aviva, Standard Life, and Legal & General, as well as newer companies such as PensionBee, Nest, and People’s Pension.

How Do You Consolidate Pension Pots?

The exact process will depend on your providers, but it usually follows these steps:

• Choose the scheme you want to consolidate into.
• Contact your existing pension providers and request transfer values.
• Check whether there are any exit fees or valuable benefits you might lose.
• Apply to transfer the funds, either online or by completing paper forms.

Some platforms offer straightforward online tools to help with this. Others may take a little more effort, but support is usually available.

What Are the Benefits of Consolidation?

Consolidating your pensions can offer several practical advantages:

Simplicity

Managing a single pension account is much easier than juggling several. You’ll have one place to check your balance, review performance, and update your details.

Control Over Investments

Consolidation can give you more control over how your pension is invested. Instead of spreading your money across multiple schemes with different strategies, you can choose a consistent approach that suits your goals and risk level.

If you want even more flexibility, consolidating into a SIPP (self-invested personal pension) could offer a wider range of investment options.

Potential Cost Savings

Having multiple pensions can mean paying multiple sets of fees. Consolidating could reduce the overall cost of managing your pensions—especially if you move into a scheme with lower annual charges or better value for larger funds.

Always check the fees of both your existing and new providers before deciding.

Easier Retirement Planning

With everything in one place, it’s easier to get a clear picture of your total pension savings. This can help you plan when and how to access your money—whether through drawdown, annuities, or taking lump sums.

Are There Any Disadvantages?

Yes—consolidation isn’t always the right move. Here are a few things to look out for:

Exit Fees or Transfer Costs

Some providers charge fees if you move your money elsewhere. Others might have higher ongoing charges than your current plans. Always compare the total costs before consolidating.

Loss of Benefits

Some pensions come with valuable features, such as a guaranteed annuity rate or protected tax-free cash. Moving to a new scheme could mean losing these benefits.

If you have safeguarded benefits worth more than £30,000, you must take regulated financial advice before transferring.

Reduced Investment Options

Not all pension providers offer a wide range of investments. If you move into a more limited scheme, you might lose some flexibility to invest in the way you prefer.

Summary of Pros and Cons

Who Should You Consolidate With?

Choosing the right provider is crucial. Look beyond branding or mobile app design—consider:

• Fee structure
• Investment options and performance
• Ease of use
• Customer service

As former Pensions Minister Steve Webb once said, the provider with the best marketing isn’t always the one that offers the best long-term value.

Should You Consolidate Small Pensions?

If you have up to three pension pots each worth less than £10,000, you may be able to withdraw them as small pot lump sums. This allows:

• 25% tax-free
• The rest taxed as income
• No impact on your pension annual allowance

Keeping small pots separate could be a tax-efficient option, especially if you’re still contributing to other pensions. It’s a good idea to get advice if you’re thinking of using this rule.

What If You’re Close to Retirement?

If you’re just weeks or months away from accessing your pension, consolidation might not be necessary—or helpful.

For instance, if you’re planning to buy an annuity, the potential benefits of consolidation may be minimal. In fact, there are situations where keeping pension pots separate could work better, such as:

• If one pot has already had its 25% tax-free cash taken
• If you’re accessing part of a pension early due to ill health
• If you’re drawing just a small amount from one scheme
• If a pension sharing order applies to one of your pots

If you’re considering drawdown, a specialist financial adviser can help you decide whether consolidation is worth it.

Making the Right Decision

If you’re confident managing your finances, you may feel comfortable making this decision after researching the pros and cons. That might include reviewing the features and charges of your current and potential providers, and looking at their investment options and performance.

There’s also helpful guidance on the MoneyHelper website, a government-backed service offering free, impartial information.

If in doubt, speaking to a regulated financial adviser can give you the reassurance that you’re making the best choice for your situation.