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If your clients have multiple pensions, combining them into a single pot might seem like an attractive and sensible option.
However, consolidating their pensions without seeking financial advice could lead to unintended consequences that hamper their long-term plans.
Indeed, analysis by People’s Pension has revealed that savers lost £1.7 billion through poorly informed pension transfers in the year to 30 June 2025 – a 42% increase on 2023.
Read on to explore the pros and cons of pension consolidation and learn three important ways a financial planner could help your clients decide if it’s the right choice for them.
Pros and cons of pension consolidation
To make an informed decision about how to manage their pension wealth, your clients need to understand the potential pros and cons of combining their pensions in one pot.
Pros
- Boost investment performance – Consolidating allows your clients to move their money out of underperforming funds or switch to schemes that offer a wider choice of investments. Having everything in one place could also make it easier for them to align their investment strategy with their goals.
- Easier to manage – Looking after a single pot is likely to be less complicated and time-consuming than overseeing multiple pots. It could also reduce the risk of losing track of old pensions.
- Potentially reduce costs – Pension charges, such as the annual management charge (AMC) and fund charges, may have a significant effect on pension wealth over time. Combining funds into a single pot could reduce overall costs and allow your clients to eliminate higher-charging schemes (typically older ones).
Cons
- Loss of valuable benefits – Some schemes offer benefits that would be hard to replace. For example, defined benefit (DB) or “final salary” pensions provide a secure, guaranteed income for life, regardless of investment performance or market fluctuations. They may also offer protected tax-free cash or guaranteed annuity rates. Your clients will lose these valuable benefits if they move their money into another pension scheme.
- Transfer charges – Some pension providers charge exit fees or other penalties for transferring funds out of their scheme. These costs need to be weighed carefully against the advantages of consolidation.
- Tax implications – If your clients start drawing flexibly from their pension, this usually triggers the Money Purchase Annual allowance (MPAA), which reduces the amount they can contribute tax-efficiently to their pension in a single tax year. However, the “small pot exemption” allows an individual to cash in up to three personal pension pots (and an unlimited number of workplace pensions) worth up to £10,000 without triggering the MPAA. If your clients consolidate all their pensions into a single pot, they’ll no longer be able to take advantage of this exemption.
- Loss of future employer contributions – If your clients consolidate a workplace pension that their employer is still paying into, they could miss out on future employer contributions.
3 important ways a financial planner can help your clients make a considered decision
Consolidating pensions can be a complex decision. A financial planner can help your clients make an informed choice by:
1. Flagging valuable benefits and guarantees
If your clients have lots of small pension pots they’ve built up over many years, they may not be fully aware of the benefits offered by each scheme. Indeed, if an individual has been automatically enrolled in a workplace pension plan, they might have paid little attention to the terms and conditions.
A financial planner can identify valuable benefits, such as guaranteed annuity rates and enhanced tax-free cash entitlements. They can also explain how these benefits work and how they could contribute to your clients’ retirement wealth.
If you have clients who hold a defined benefit pension valued at over £30,000, they are legally obliged to seek advice from a regulated financial professional before they transfer it to a defined contribution (DC) scheme.
2. Assessing the suitability of consolidation for your clients’ specific needs
Pension consolidation is not a one-size-fits-all solution. Its advantages and disadvantages – and how these weigh against each other – will depend on your clients’ specific circumstances.
A financial planner can support your clients in defining their financial goals and determine their attitude towards investment risk. They can then analyse all the pension information available – such as fees and investment performance – to help your clients structure their pensions in line with their life stage and objectives.
3. Providing guidance on structuring pensions tax-efficiently
There’s a good chance that your clients have never heard of the MPAA or that they’re confused by the new legislation on pensions and Inheritance Tax that is due to take effect from 6 April 2027.
A financial planner can ensure that your clients understand the tax implications of consolidation and help them navigate the complex and changing tax rules around pensions.
Moreover, regular reviews could help your clients monitor and adapt their pension strategy to ensure they stay on track to achieve their retirement goals.
Get in touch
If you’d like to find out more about how we can work together to support your clients in planning financially for their retirement, we’d love to hear from you.
To learn more, please email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
This article is for general information only and does not constitute advice. The information is aimed at professional advisers only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning or tax planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your clients’ circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Workplace pensions are regulated by The Pensions Regulator.
Approved by Best Practice IFA Group Ltd on 14/11/25