The pros and cons of consolidating pensions

Published by The Moneywise Team on 19 July 2011.
Last updated on 26 July 2011

Russian doll

Q: My relative has just joined a company stakeholder pension scheme and wants to know if it is a good idea to transfer a very small personal pension (which is frozen at the moment) and a SERPS pension into his new company scheme?

Philip Pearson is a partner at P&P Invest in Southampton

A: By electing to 'contract out' of the now-discontinued State Earnings Related Pension Scheme (SERPS), your relative is in effect giving up this state pension 'top-up' in favour of an additional payment into his personal pension - made by the Department for Work and Pensions.

A stakeholder pension is designed to provide a low-cost means of saving towards retirement over the long term. With company-sponsored stakeholder pensions, the contribution made by the employee is deducted from their salary before payday.

Although there is no obligation, the employer usually makes an additional contribution to the plan on behalf of the employee. Charges are very low, with annual management charges capped at a maximum 1.5% for the first 10 years.

Stakeholders normally accept transfers in from other pension arrangements, including personal pensions and occupational pensions; there is also no charge should your relative wish to transfer to an alternative pension at some point in the future.

Consolidating helps to tidy up the paperwork and identify the value of total pension contributions and how much these are likely to provide at retirement. From an organisational point of view this is a good thing. Given that you describe it as a small personal pension, it's also unlikely that your relative will lose any benefits by consolidating.

It's worth remembering that a stakeholder pension does not provide any form of guaranteed investment return or guaranteed minimum level of income at retirement.

Instead, benefits are reliant upon investment growth and sufficient funding in order to obtain a pot large enough to provide sufficient income when you retire. 

Therefore, transferring funds from the personal pension will help boost the stakeholder pot.

As a guide, a minimum of 10% of gross salary should be allocated to a pension over a period of 40 years, in order to create a pension fund large enough to provide an income equal to half the final salary on retirement.

The pros and cons of consolidating pensions


  • It's easier from an admin point of view
  • You know exactly how much money you have saved in total into your pensions - and if you need to save more
  • It's easier to spot if a pension is performing badly and if you need to move your money out of particular funds.


  • High exit fees when you transfer old pensions can eat into your total fund
  • Some older pensions include guaranteed annuities that you would lose by consolidating; if you have such a pension you should keep it where it is
  • If you're in a final salary scheme or your pension includes a minimum pension guarantee, you would lose these benefits if you consolidated them; again, leave them where they are.

Leave a comment