Martin Lewis, the financial expert, along with his team of pension specialists, has cautioned that consolidating all your pension pots into one account may not be the most beneficial move for everyone.
On his BBC podcast, Martin Lewis and his panel of pension experts addressed some pressing queries from fans about their future financial planning.
He highlighted that the “biggest single pension question we have had” was related to the consolidation of pension pots.
It’s common for individuals to accumulate multiple pension pots, typically as they switch jobs throughout their career or opt to open several private pension accounts. However, a listener on X asked: “Would you say it’s more beneficial to keep all of my different work pensions separate or collate them into one pension pot to be managed together?”
Charlotte Jackson, the Head of Guidance at the Money and Pensions Service, suggested that this decision often depends on the individual saver. She revealed her preference for having “things neat and tidy in one place”.
However, she warned: “There is a big cautionary ‘but’ in there,” which prompted a chuckle from the podcast host who asked: “What’s your big but Charlotte?”
She explained: “You need to know you’re not giving anything up and there are some really good reasons as to why you might not want to consolidate everything.
“Don’t automatically jump in to say; ‘I’m going be neat and tidy and put it all in one pot’, ask some questions. Keeping some separate is helpful sometimes.”
Martin made it clear that there’s “nothing wrong with being biased towards consolidating because it makes your life easier” as Charlotte outlined some key considerations for individuals contemplating whether to merge their pensions into a single pot.
She stressed the importance of understanding the specific benefits and features associated with different pension pots, irrespective of the actual monetary value in each. She elaborated: “It might mean that you don’t have very much money in it but it will bring you lots of other benefits like if you die it will protect your spouse for example.”
The expert cautioned that such details often constitute “the devil in the details”, but another factor to consider before making a decision is whether they “might want to treat (their money) differently” in the future. Charlotte went on to say: “Having a couple of separate pots will enable you to maybe make a range of different options and treat them differently and that can be really useful for tax purposes.”
Adding to the discussion, Mihir Choughule, wealth manager at Tideway Wealth, posed another issue for listeners to ponder: “It really depends at what stage of your life you’re in.
“If you’re accumulating and let’s say you’re in your 20s or 30s, chances are the pension assets you have are not going to be complicated and esoteric, so consolidation probably makes sense. Probably being the keyword. Whereas if you’re in your 40s,50s,60s, approaching or thinking of retirement and your focus is on preservation not just accumulation then it probably might make sense to have separate pots so that each pot does separate things.”
Martin summarised: “The younger you are, the easier it is, the simpler it is to consolidate,” while also emphasising for listeners that the panel were “generalising” their advice as everyone’s financial situation is unique and may not benefit from these strategies.
