Question: I’ve several small pensions from different jobs over the years and, to be honest, I haven’t paid much attention to them since leaving those employers. I’m starting to think more seriously about retirement now, and would like to get a clearer picture of what I have and how it is all performing. Would I be better off combining the pensions into one pot so they are easier to manage, or is there any advantage to leaving them where they are? I’m also worried that I could lose valuable benefits by moving them?
Answer: It’s more common than you might think to end up with several small pensions scattered across different employers. A few years in one job, a career change, maybe a period abroad and suddenly you realise you’ve a handful of pensions you haven’t looked at in years.
The good news is that the money is still yours, still invested, and still working away quietly in the background. The question now is whether you should gather them into one place or leave them where they are.
The answer isn’t automatic. It depends on what type of pensions you have, what benefits they carry, and what you want your retirement to look like. But once you understand the moving parts, the decision becomes far clearer.
Let’s start with the basics
Know what you actually have: this step alone often surprises people. Some pots are larger than expected; others are smaller. Some have valuable guarantees; others are straightforward savings plans. You can contact the providers directly, ask your former employers, or work with a financial adviser who deals with all pension companies and can help locate them.
Identify the type: if any of your old pensions are Defined Benefit (DB) schemes – the traditional ‘final salary’ type – tread carefully. These schemes promise a set level of income at retirement. They may include inflation protection, spouse’s benefits, or guaranteed annuity rates. These features can be extremely valuable and are often lost if you transfer the pension elsewhere.
If your old pensions are Defined Contribution (DC) schemes, where the value depends on contributions and investment performance, you have more flexibility. These are the pots people most commonly consolidate.
Combining your pensions
There are several reasons why people choose to merge their DC pensions into one pot:
1. Simplicity managing: one pension is easier than juggling five. One statement, one investment strategy, one retirement plan. It reduces the risk of losing track again.
2. Lower charges: some older pensions have higher fees or outdated fund options. Modern PRSAs and personal pensions often offer lower charges and better investment choice.
3. Better control: a single pot gives you clearer visibility of your retirement picture. You can adjust your risk level, plan withdrawals, and make decisions with confidence.
4. Easier drawdown: when you retire, having one pot makes the process of taking your lump sum, setting up an Approved Retirement Fund (ARF), or buying an annuity far more straightforward.
Leaving them where they are: consolidation isn’t always the right move. There are situations where keeping pensions separate is wiser:
1. Valuable guarantees: some older pensions include guaranteed annuity rates or loyalty bonuses. These can significantly increase your retirement income. If you transfer out, they’re gone.
2. Strong defined benefit: if you have a DB pension, it may be better left untouched. The security of a guaranteed income is hard to replicate elsewhere.
3. Transfer penalties: a small number of schemes apply exit charges. You need to check this before moving anything.
4. Diversification: different pensions may be invested differently. Keeping them separate can sometimes spread risk, though this can also be achieved within a single modern pension.
Your retirement strategy
Ultimately, the decision should support your long- term goals. Ask yourself the following questions.
• Do I want simplicity or am I comfortable managing multiple pots?
• Do I value guaranteed income or prefer flexibility and control?
• Am I confident choosing investment strategies, or do I prefer a hands off lifestyle fund?
• Do I plan to use an ARF, buy an annuity, or take a mix of both?
Your answers will guide the right path. But, before you move anything, get advice. Transferring pensions is one of those areas where a quick decision can cost you dearly. A financial planner can review each pot, highlight any hidden benefits, and help you avoid mistakes, especially around Defined Benefit schemes or guaranteed annuity rates.
Martin Glennon is head of financial planning at ifac, the professional services firm for farming, food and agribusiness
