Pension consolidation simply means combining two or more pension schemes into a single pot. There are several reasons why this might be worthwhile.

For example, keeping track of various pensions can become more difficult as you get older, especially if you have lots of pension statements arriving in the post each year or your personal circumstances change. The Association of British Insurers estimates that only 1 in 25 people tell their pension provider when they move home, leading to 1.6 million pension pots worth almost £20 billion remaining untouched and unclaimed in the UK.

Another difficulty that comes with owning several pensions is maintaining a good understanding of how they are all performing. This is much harder to determine when you hold a few pensions with different amounts.

So, consolidating your pensions could help reduce paperwork and make it easier to keep track of your pension – particularly important as you get closer to retirement. It will also make it easier to see whether your pension is still on track to meet your retirement objectives.

It’s always a good idea to know how much your pensions are costing you in terms of annual fees and charges, especially as high fees can erode the value of smaller pension amounts. Most pension schemes will charge an annual percentage of your total pension pot as an administration fee. But some will also add on other fixed charges as well.

Consolidating your pensions into a single pension pot could mean you end up paying less in charges, overall, than you were previously. However, this isn’t always the case. A financial adviser will be able to provide you with the information you need to make an informed decision.

Having different pension pots increases the likelihood that some will perform better than others. While past investment performance is no guarantee of future returns, consolidating your pensions gives you the opportunity to look at the best and worst performers, and respond accordingly.

Combining your investments will also give you a fresh opportunity to have more of a say in where your money is invested so that it aligns with your values and principles – as well as your investment goals.

It’s important to remember that, as with any investment, the value of pensions can go up as well as down and you may not get back the full amount invested.

Not always. Sometimes it’s better to keep your pension where it is. For this reason, it’s essential to seek out professional advice when considering your options. For example, some pensions come with hefty charges if you decide to transfer out, while some older pension schemes carry valuable benefits or incentives you won’t be able to find with a newer pension, like a final salary scheme or a guaranteed annuity.

Final salary pension

If you’re lucky enough to own a final salary pension, chances are you would be much better off holding on to it. A final salary pension provides the owner with a guaranteed level of income at retirement.

In most cases, that guarantee is far more advantageous than switching to a pension that comes with investment risk, and where its value isn’t guaranteed.

Guaranteed annuity rates

Similarly, some older pension schemes offer their members a guaranteed annuity rate. This could potentially give you a higher annual income from your pension if you keep it until the specified retirement date.

A guaranteed annuity rate on your pension pot will most likely be better than an annuity you can buy on the open market – your financial adviser will be able to check this for you.

As previously mentioned, you should speak to someone who specialises in pensions advice, like an Amber River financial planner, before making any decisions. They will begin by asking about the different pensions you hold. From there they can determine whether any pension exit fees would be payable, and whether you’d risk losing any special features with those pensions, should you transfer.

Be wary of anyone who unexpectedly contacts you and suggests that you transfer your pension. Pension scams are increasingly common so, if you get such a call or email, beware: they could be a fraudster.

Consolidating different pensions into a single retirement pot could help save you time, money and the frustration that often comes with keeping track of your finances. But it’s important to obtain good quality independent advice to ensure you’re making the right decision.

To find out more about the benefits of seeking advice from a financial planner: The true benefits of paying for financial advice