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How do I merge my retirement pots – is it a good idea?

With With millions of workers holding multiple pensions, keeping control of our retirement savings can be a chore, even for those of us who should be better informed.

And when a recent poll found that a third of UK workers feared they had lost track of a pension, it certainly touched me.

By the time I turned 30, I had managed to collect five different occupational pension plans from four providers. Staying abreast of the constant stream of political statements and documents had become impossible.

Missing pots: A recent survey found a third of UK workers feared they had lost track of a pension

Then I started seeing ads for pension consolidation services almost every time I took a train. It was like someone upstairs was trying to message me (admittedly quite annoying).

Two years ago, I decided enough was enough. I was going to take matters into my own hands once and for all to regain control.

Industry data shows I was far from alone, with tens of thousands of people choosing to bundle disparate pots together each year.

This sparked a do-it-yourself pension boom. Just look at PensionBee, which has grown from a spunky retirement start-up to managing over £2.6bn in savers’ cash.

It’s not hard to see the appeal of moving all those savings into a single pot that you can actually track. But does it still make sense financially?

The retirement experts at Lane Clark & ​​Peacock (LCP) have investigated this exact question. Their answer: it depends.

“Despite the lures of pension consolidation, it’s important to look before you jump,” says Sir Steve Webb, former pensions minister and now LCP partner.

How to make the most of your working pension

Modern work pensions are essentially cheap investment products provided and subsidized by employers.

The money you put into your current pot is topped up by your employer – free money you don’t want to miss out on – and the government.

From free money to cheap investments to handy money-saving perks…read our 16 tips to boost your retirement through your workplace pension.

For starters, transferring out of any pension means giving up any conditions or benefits included in the plan.

This is of particular concern for older savers, who may still hold pensions that offer a better guaranteed annuity rate – the annual income you can buy with your pension pot in retirement.

Other complications include higher exit fees and giving up tax benefits (some older pensions allow you to take more than 25% tax-free).

This is why experts generally recommend that older savers – especially those with larger pots – speak with an advisor before consolidating.

Those with larger pots approaching their lifetime allocation should also be wary. This is the amount you can raise without paying more tax, currently £1.073 million.

But if you have three smaller pots under £10,000, they don’t count against your limit, so it might be worth splitting them up.

As someone who took my first pension in 2010, I had missed out on special benefits and was way off the lifetime limit.

Yet even then, I still needed to work out the numbers. Pension consolidation firms make a big chunk out of their low fees, which they say are significantly lower than the industry average. For example, PensionBee’s popular “tracker” wallet only charges 0.5%.

When your money is invested for decades, even a small saving – say 0.1% – can easily add up to thousands of pounds over the years.

Using the industry average doesn’t always tell the whole story, with LCP’s research revealing that newer repos generally charge lower rates. In my case, the fees ranged from 0.4% (for a very conservative mixed-asset fund) to 0.9%.

Tip: Experts generally recommend that older savers, especially those with large pots, speak with an advisor before consolidating

Tip: Experts generally recommend that older savers, especially those with large pots, speak with an advisor before consolidating

But my research revealed something interesting: PensionBee was not the best option.

Instead, that honor went to US investment giant Vanguard, which lets you hold its ultra-low-cost funds (including its popular LifeStrategy range) in a self-invested personal pension, or Sipp. It also offers a greater choice of investment options

I worried that some of my investments were too conservative. An older colleague shared with me his regret that he hadn’t abandoned his provider’s default plan, missing out on decades of stock market growth.

Indeed, most of my pension money was invested in the Columbia Threadneedle Multi-Asset Fund – a defensive fund better suited to someone nearing retirement.

I also had a large sum in Aviva’s My Future Focus Growth fund which, while more ambitious than a multi-asset fund, is almost twice as expensive as Vanguard’s equivalents.

With even a relatively modest fund of £20,000 currently, the potential difference over the next 30 years could easily reach £7,000 (assuming 5pc annual growth).

Doing the transfer itself wasn’t difficult, with Vanguard taking care of all the admins once I provided them with my policy numbers and basic details.

Some savers may feel nervous about putting all their retirement funds in one place, which LCP research has identified.

But Sir Steve says these more modern and diversified repos are in fact often less risky than older options, which are sometimes biased in favor of UK equities.

Pot trackers such as PensionBee and Nutmeg are designed to track broad stock indices.

Of course, no investment is without risk. But this approach has consistently proven itself over the decades.

In short, consolidation can help some savers lower their costs and improve their pensions, giving them a bigger pot in the long run, but only if it suits their personal circumstances.

In my case, it has helped me reduce paperwork, lower my retirement burdens, and replace arrears with (hopefully) better alternatives.

So far so good, then. Another 30 years until I can say for sure.

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