Why So Many of Us Have a Drawer Full of Old Pension Pots

Since automatic enrolment began in 2012, most employees in the UK have been signed up to a workplace pension whether they asked for one or not. That is broadly good news. The side effect is that anyone who has changed jobs a few times can easily end up with four, five or six small pots, each with its own login, statement and set of charges.

Small pots are not harmless. A pot worth £1,200 paying an annual charge of 0.9% is quietly losing value in real terms, and if you have moved house without telling an old scheme, you may not even be seeing the statements. Consolidating means transferring those pots into a single arrangement, usually a current workplace scheme or a personal pension. It is not the same as cashing in, and no tax is triggered simply by moving money between pension schemes.

What Consolidating Actually Involves

In practice, you choose the scheme you want to keep, ask it to accept transfers, then contact each old provider and ask for a transfer value. The old scheme sells your investments, sends the money across, and the new scheme buys funds according to your instructions. That process can take anywhere from a few weeks to several months, and your money is out of the market for part of it.

You should also know two important boundaries. Transfers between pension schemes do not use up your annual allowance, which currently stands at £60,000, so you are not "wasting" contribution room. But if you have already started drawing from a pension, the money purchase annual allowance of £10,000 may affect future contributions even though the transfer itself is not counted.

The Real Advantages of One Pot

• Simpler paperwork. One statement, one login, one set of charges to review each year.
• A clearer picture. It is far easier to judge whether you are on track for retirement when you can see your whole pot in one place.
• Lower costs. Older schemes often carry charges of 1% or more. Modern workplace schemes and low-cost personal pensions can be considerably cheaper, and that difference compounds over decades.
• Better investment control. A single scheme usually gives you a wider fund range and makes it practical to adjust your risk as you approach retirement.
• Less admin for your family. If the worst happens, one clearly nominated scheme is much easier for your loved ones to deal with than six half-forgotten ones.

Where People Get Caught Out

Consolidation is often sensible, but it is not automatically right. Before you move anything, check what you would be giving up.

• Exit fees. Many older policies carry a charge for leaving. For contract-based workplace schemes, exit charges for members aged 55 and over are capped at 1%, but not every type of pot is covered, so ask for the figure in writing.
• Safeguarded benefits. Some pots include a guaranteed annuity rate, a guaranteed minimum pension or a protected pension age of 55. These are genuinely valuable and are usually lost for good once you transfer.
• Final salary schemes. If a pot is defined benefit, transferring is rarely in your interest, and if the value is over £30,000 you are legally required to take regulated advice first.
• With-profits funds. Leaving one mid-term can trigger a market value reduction, cutting the amount you receive.
• Higher charges elsewhere. A cheap-looking headline fee can be undercut if the new scheme's funds cost more. Compare total cost, not just the platform charge.
• A gap in the market. Your money may be out of the market for several weeks during a transfer. That is a risk in both directions.

How to Do It Properly

Start by tracking down anything you have lost. The government offers a free pension tracing service, and old employers can usually confirm which scheme you were in and roughly when. Once you have a list, request a current statement from each provider showing the transfer value, the charges and any special features.

Then compare honestly. Ask the receiving scheme whether it accepts transfers, what it charges, what funds it offers and whether it pays anything towards advice. Set the total annual cost of staying put against the total annual cost of moving, and give some thought to whether the investment options suit someone at your stage of life.

There is no deadline and no prize for moving quickly. Anyone who pressures you into a fast transfer, particularly into an unusual investment such as overseas property or a storage unit, is a reason to stop and take regulated advice. A straightforward, low-cost scheme with a wide fund range is normally the sensible destination. A final salary pot with guarantees is normally best left exactly where it is.

A Practical Order of Play

Sort your pots by value and by type. Deal with the straightforward defined contribution pots first, and park anything defined benefit or safeguarded until you have had proper advice. Keep a single folder, digital or paper, with every scheme name, policy number and current value, and update it once a year. Nominate beneficiaries on each scheme you keep.

Consolidation is a tidy-up, not a magic trick. It will not increase your retirement income on its own, but it will make your money easier to see, easier to manage and, quite often, cheaper to hold. Do it carefully and it is one of the simplest improvements you can make to your financial life.