The number of people saving into a private sector workplace pension has doubled since 2012, reaching 23 million, according to recent data. Millions more hold personal pensions and self-invested personal pensions (Sipps). With average job tenure around five years, many workers accumulate multiple pension pots over their careers, prompting experts to urge consolidation as a way to simplify retirement finances and potentially boost income.
Why Consolidation Matters
Alistair McQueen, head of savings and retirement at Aviva, explains: "Every time we change jobs, we are likely to begin a new pension. With average [job] tenure at about five years, we may end our working lives with many pension pots." This fragmentation can make it harder to manage investments effectively and plan for retirement.
Kirsty Stone, a partner and chartered financial planner at The Private Office, highlights the practical benefits: "There is quite a strong argument to say that if you’ve got all your pensions in one place, it’s less of a daunting task to try to engage more with how it’s invested rather than having four or five little pots all over the place, which doesn’t feel as meaningful."
Simpler Access in Retirement
Stone also points out that consolidating makes withdrawing income easier. "If you want to pay yourself £500 a month, say, that is much easier to do if you access it all from one provider." With separate pots, retirees must deal with each provider individually, which Stone says "will just be messy in retirement."
Not Always a No-Brainer
However, experts caution against blanket consolidation. Steve Webb, a partner at consultancy firm LCP and former pensions minister, warns: "It’s definitely not a no-brainer. If someone is thinking about consolidating pensions, the question is always why? What is the problem you are trying to solve?" He notes that leaving pensions where they are does not mean they are frozen or lost – they continue to grow, and in some cases, staying put might be the best option.
Martin Lewis, the BBC and ITV star, advises: "You might not want to consolidate all of your pensions into the same place – you could have a pension that comes with specific benefits that you'll lose if you transfer money out. Or there could be a reason to keep an existing workplace pension separate from some of your older pensions." He suggests partial consolidation: combining some pensions with a single provider while leaving others separate, which can make sense in certain situations.
Key Considerations Before Consolidating
- Check for safeguarded benefits: Some older pensions offer guaranteed annuity rates or other perks that would be lost upon transfer.
- Compare fees: Consolidating could reduce overall charges, but some schemes have higher costs than others.
- Investment performance: Ensure the receiving scheme offers suitable investment options that match your risk profile.
- Seek professional advice: Given the complexity, consulting a financial adviser can help avoid costly mistakes.
Impact on Retirement Income
Consolidation alone does not guarantee higher income, but it can improve engagement and management, potentially leading to better investment decisions. With 23 million people now in workplace pensions, the trend toward multiple pots is widespread. By consolidating, savers can gain a clearer picture of their retirement savings and make more informed choices about contributions and withdrawals.
Ultimately, the decision depends on individual circumstances. While some will benefit from full consolidation, others may find partial consolidation or leaving pots untouched is the wiser path. As Webb emphasises, understanding the problem you're trying to solve is the first step.
