Should you put all your pensions in one pot? 


Thousands of savers have used their time in lockdown to get their old pension pots working for them again. Pension platforms have reported a rise in people taking control of how their savings are invested.

Interactive Investor recorded a 44 per cent increase in savers transferring retirement money into its self-invested personal pension (Sipp) this year. 

PensionBee saw a 24 per cent year-on-year increase in transfers in April alone, while AJ Bell recorded a 17 per cent uplift in the first half of the year. 

Taking a Sipp: Pension platforms have reported a rise in people taking control of how their savings are invested

Workplace pensions are now almost always defined contribution plans – meaning your retirement income not only depends on how much you and your employer contribute, but how well the pot is invested. 

So is it worth leaving your old pension where it is, or should you have a go at investing yourself with a Sipp?

Why move money?

SIPP providers can offer thousands of funds to choose from, whereas an old workplace scheme might have only a handful available from one provider. 

Cost is another important factor. Investing isn’t free, and fees will be deducted every year.

In 2015, the Government set a cap of 0.75 per cent on workplace pension default funds, but it doesn’t apply to older schemes that are already in place.

Older schemes typically charge a percentage of the value of the fund — often costing as much as 2 per cent of the fund value each year.

Justin Modray, of Candid Financial Advice, says: ‘The rule of thumb is, if you’re paying more than 1 per cent a year it’s too much.’

On a pot of £50,000, annual charges at 1.05 per cent of the fund would be £525. Compare this to Cavendish Online which offers the Fidelity Sipp for 0.25 per cent a year (£125 on £50,000), plus fund charges. 

SIPP providers can offer thousands of funds to choose from, whereas an old workplace scheme might have only a handful available from one provider

SIPP providers can offer thousands of funds to choose from, whereas an old workplace scheme might have only a handful available from one provider

If we assume a FTSE All Share tracker fund, then the total would be 0.31 per cent a year, equivalent to just £155.

Older schemes are also sometimes restrictive when it comes to accessing money at retirement, and some will allow you to use the money to buy only an annuity.

In contrast, new schemes allow a full range of options, the most popular being income drawdown. 

This is where you can take a regular income or lump sum from your pension and leave the rest invested to continue growing.

Combining your old pension pots in one place can also save the hassle of managing different plans with multiple companies.

Nathan Long, of platform Hargreaves Lansdown, says: ‘Consolidating pensions will generally encourage more appropriate retirement decisions, as people will consider their total pension wealth, rather than looking at smaller individual pots in isolation.’

Why stay put?

While many older pensions are expensive, some offer valuable benefits that are worth hanging on to.

Some company schemes set up before April 2006 allow members to take enhanced tax-free cash sums of more than the standard 25 per cent when you reach retirement age.

Guaranteed annuity rates also might make you think twice about leaving. Given the collapse in annuity rates in recent years, a promised rate is worth keeping if it’s high enough. 

Your scheme might also come with life cover or critical illness insurance. These policies may be more expensive or impossible to replace elsewhere.

Interactive Investor recorded a 44 per cent increase in savers transferring retirement money into its self-invested personal pension (Sipp) this year

Interactive Investor recorded a 44 per cent increase in savers transferring retirement money into its self-invested personal pension (Sipp) this year

Switching your money might also be costly if there’s a hefty exit penalty attached. Yet these fees are capped at 1 per cent after you turn 55.

You can find out the terms of your pension scheme by digging out the original paperwork, or contacting your provider over the phone.

If you’re lucky enough to have a final-salary pension – also known as defined benefit – it will almost always make sense to stay put as they offer a guaranteed income for life and inflation protection, as payouts rise with the cost of living.

And if you’re paying into an existing employee scheme then you should remain to benefit from employer contributions.

How to move

If you decide that a transfer is the right move, a Sipp isn’t the only option.

Insurance companies offer private pensions which have become more competitive over the years, although charges still vary.

Mr Modray says: ‘Stakeholder pensions still tend to be their lowest-priced offerings, with some available for around 0.6 per cent or less a year all-in.

However, fund choice may be limited and income drawdown may not be available in retirement.’

If you are still working, you might be able to transfer old plans into your current scheme. You should make sure it’s low-cost and has attractive investment options.

You can action a switch by opening a Sipp or private pension plan with your chosen provider, and providing details of the schemes you wish to transfer in.

This includes the name of the provider, the policy number of each pension you want to transfer, the scheme name and a recent transfer value. They should look after the rest.

To transfer into an existing work scheme, you will need to speak to your Human Resources department.

If you’re not confident switching is the right move, seek help from a Financial Conduct Authority registered, independent financial adviser that specialises in retirement planning.

There will be a fee to pay, but it could be money well spent as once you’ve switched, you can’t reverse it.

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