At Profecto Financial Services we speak to all our clients about pensions as they are an important aspect of any financial planning advice.
At Profecto Financial Services we speak to all our clients about pensions as they are an important aspect of any financial planning advice. Individual client circumstances are very different, but for a lot of clients the complexity of pensions causes them concern and worry. Most people are not experts in pensions and the pension industry in the UK is complex. Despite government attempts to simplify it, they tend to just pass legislation that makes them more complex!
This blog focuses on the benefits and drawbacks of consolidation. It does not relate to defined benefits schemes such as NHS or civil service pensions, they are a different kettle of fish entirely. This information is about personal and group schemes known as defined contribution (DC) schemes. I aim to help you weigh up the pros and cons of consolidating various pensions into one. However, it also applies to you if you have one pension that you have never had reviewed, and are unsure about.
Let’s start by understanding what a DC scheme is in its basic form. Pensions are a way of saving that you can draw on in retirement. They are tax efficient, and that’s why we use them. Governments encourage the use of pensions, via tax concessions, so that people are more self-reliant in retirement.
There are generally two charges associated with pensions, the provider or plan charge and the fund charges. Some schemes will charge both, some just one. You may also be paying for ongoing serving fees and should therefore be receiving annual reviews. Your money will be invested in an investment fund. The investment fund will (hopefully) be invested in various asset classes so that your investment is diversified. This spread across asset classes can help lower the risk compared to investing in one asset class.
If you have worked for different companies over your lifetime, you may have ended up with various pension pots all with different fund values, invested in various funds. This could even be the case if you have worked for the same company. Pension schemes can vary hugely too. What is often confusing for clients is that they may have several pensions with a provider, say Aviva, but they don’t realise that the schemes are all different and have different charges and sometimes benefits.
I have had clients with five pensions with Aviva that were all different. Why does this happen? Mostly it’s due to providers taking over the administration of pension schemes that have different rules. Your pension with one provider could be very different from your friends/neighbours/partners pension with the same provider.
Keeping track of all of these schemes can be time consuming and confusing. How do you even begin to understand what you may receive in retirement when you get various statements with different retirement dates and fund values. Then there are the charges. Is it good value or could you pay less elsewhere? Are the fund charges excessive?
So, let’s look at the main benefits of consolidating your pensions into one:
Ease of administration:
If you have several pensions, it can be hard to keep track of them. There is an estimated £31 billion in ‘lost’ pension assets according to the Pensions Policy Institute (2024). If you are unsure if you have any pensions, you could try looking at the pension tracing service to see if you can find them or contact the HR department of your previous employers. Remember that auto enrolment only came into force in 2012, so you may have not been enrolled in the company scheme even if they provided one.
Reducing charges:
Some older scheme charges can be high. More modern schemes may have lower and the charges should be transparent. This will ensure you understand exactly what you are paying for in terms of fund and provider charges.
Increased flexibility:
Some schemes do not allow flexible withdrawals when it comes to taking your money. It is really important to understand this as it is increasingly the norm that people want to be able to access their pensions flexibility. This may be because you want to work part time so don’t need a set income every month but want to use your pensions to top up your earned income. Whilst the traditional route of purchasing an annuity can be appealing if the rates are reasonable, annuities often die with you, so you will not be able to pass the remaining funds to your next of kin when you die.
Greater fund choice:
Some old schemes restrict the number of, or funds you can choose to invest in. You may end in a fund that is far more volatile than you would like or one that is not making the most of investment growth opportunities. Some pensions enrol you in ‘life styling’ schemes which de-risk your investment as you get closer to retirement. Does that make sense for your situation? If you are going to be drawing and income from this pension for a few decades, then will derisking it mean you could miss out on investment growth.
What about my workplace pension?
Like most people, you are better off staying in your current employer scheme if you are entitled to join it. Your employer has to contribute to your pension under auto enrolment so they are basically giving you free money. Workplace schemes may have their limitations but they can often be low cost as well. If you opt out of the employer scheme you will end up losing this employee contribution. So, before you increase any contributions to a personal pension, check to see if your employer will match your contributions into the workplace schemes.
What are the drawbacks of consolidating:
You do need to take care because you don’t want to lose any valuable benefits. Some older pensions do offer guarantees that newer pensions will not provide. For example, enhanced tax-free cash entitlements or guaranteed annuity rates. There are also the costs to consider. In some cases, these may outweigh the benefits of consolidating. We do not recommend consolidating or pension switching unless there is a clear advantage to you in doing so.
Can you do it yourself?
The short answer is yes, you can, but you do need to take care. The following are the steps you should take:
Step 1: Gather all the information from each provider.
Step 2: Compare the costs and investment options and what investment choices you have
Step 3: See if you have any guarantees or other benefits that could be lost
Step 4: Check there are no charges for transfer, some older with profits polices charge a market value reduction if you move the pension away from them.
Step 5: Decide where to put your pensions, you may find that none of your existing pensions are actually give you the features you want so you then need to decide where to transfer them and you will have to research this.
Alternatively: If the above sounds like too much effort, then consider speaking to a financial adviser to help you. At Profecto Financial Services we are happy to have an initial free consultation to help you decide if it’s going to be the right solution for you. You will also get added benefits from speaking to us.
We are part of the Quilter Financial planning network and therefore any pension advice we give that involves an element of transfer will be checked by our compliance team. This gives you reassurance that the advice given will be of benefit to you.
What else do we offer you?
Education:
A lot of our clients have very little understanding of their pensions. This is not surprising as they are complicated. Our aim is to help you understand your pensions so that you can make informed choices going forward. This includes having greater clarity on your retirement options when it comes to drawing an income from your pension and the tax benefits of contributing to a pension as well as all the other features that may benefit you. We also take into account any new legislation that may effect how your pensions are passed on when you die, and how pensions may affect any Inheritance Tax (IHT) liability you may have.
Tax efficiency.
Remember pensions are taxable income. As Financial Advisers we can help ensure you are tax efficient when it comes to paying into your pension and withdrawing an income.
Explain any complexities
We will explain any specific rules and features of your current pensions so that you are making an informed choice. These rules can be difficult to interpret if you don’t know the correct questions to ask the provider. For example, there may be death benefits attached to the pension that whilst may be lost on transfer may actually not be that significant when you understand what they are.
One client had a pension that provided an extra 10% death benefit if they died within a certain period but this ended years before his retirement date and was fixed to a fund value years before. Given the higher charges and lack of fund choice the benefit of moving the pension outweighed the lost death benefit, especially as this benefit would run out in a few years’ time.
Continue to provide advice
The best part of our job is the ongoing relationship we build with our clients. Helping you plan your future, and supporting you in making good financial decisions gives us a lot of job satisfaction. At Profecto we pride ourselves on the personal service we provide to our clients and re always available to talk through any concerns you may have. You can contact us on 01392 925046 or email info@profectofs.com to arrange a no obligation chat.
The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.
Past performance is not a reliable indicator of future performance.
Petra Aubert is a Chartered Associate of the London Foundation for Banking and Finance.
Copyright Petra Aubert 2025
Tax Planning including Inheritance Tax Planning are not regulated by the Financial Conduct Authority.
Approver Quilter Financial Services Ltd. September 2025.
