Consolidate pensions with the same provider: is it worth it?

When looking at whether to consolidate pensions with the same provider, many people are surprised to learn how often this question comes up. Since 2013, Regulated Advice has booked over 9,000 appointments..

Most of the time, it involves pensions from different providers, but fairly regularly, someone comes in with two pensions with the same provider and wants to know whether it is even worth doing anything.

It is a reasonable question, and the answer, more often than not, is yes.

Why consolidate pensions with the same provider at all?

It seems like it should be simple enough. Same company, two pensions, surely they are much the same thing? Not really. Two pensions with the same provider can be very different products, and that difference can quietly cost you money over time.

Older pension contracts, particularly anything opened before 2012, tend to carry higher charges. The reason comes down to the Retail Distribution Review that came into effect in 2012.

Before 2012, providers paid commissions to attract funds into their plans, and providers folded those costs into higher management charges on the fund. The RDR banned that model, but the old plans stayed as they were.

For official guidance on how pension transfers work and what rules apply, you can refer to 

So if a pension predates 2012, there is a reasonable chance the charges are higher than they need to be, simply because the industry worked differently at the time.

Case study, two Aviva pensions, one important question

Aged 63 and has two Aviva pensions of £80,000 each, which he wishes to consolidate. He plans to retire in the next 10 years. There are no guaranteed annuity rates attached.

Our case study is 63, with two Aviva pots worth £80,000 each. He wants to retire within ten years and came to us with one question: Does consolidating make sense?

On the face of it, merging two pensions with the same provider sounds very straightforward. But we needed to check whether the two plans were actually comparable.

Aviva has been around a long time and has absorbed several other providers along the way, so there is a wide range of older plan types sitting in their books.

Some predate the Pension Freedoms Act 2015, which means they may not fully support flexible drawdown or give access to modern investment options. Plans set up before the Retail Distribution Review in 2012 can also carry higher charges, sometimes exceeding 1.5% per year.

Over a decade, these higher charges eat into growth more than most people would expect. Moving to a current defined contribution plan, even with the same provider, can make a real difference.

What are the benefits of consolidating pensions with the same provider?

There are a few practical reasons why it makes sense to consolidate pensions with the same provider, beyond just charges.

Simpler management. One pot is easier to deal with than two. One login, one statement, one set of decisions.

That becomes more useful as retirement gets closer, not less. A clearer retirement picture.

Planning from a single pension pot is easier to deal with than dealing with two pension pots of £80,000. Access to a broader fund range.

Current Aviva plans tend to offer more investment options, including low-cost passive trackers. Older plans often do not.

Moving across can open up better choices.

What to check before you consolidate pensions with the same provider

Consolidating with the same provider is generally less complicated than switching entirely, but there are still a few things to look at first.

Guaranteed annuity rates (GARs). In this case, there were no guaranteed annuity rates on either plan. That is always the first thing to check, because they can be genuinely valuable.

Had there been one, it could have changed the conversation entirely. GARs can be extremely attractive, and moving away from a plan that carries one is not straightforward.

 You cannot simply switch providers if the guaranteed rate on offer is strong enough to outweigh the flexibility. You need a specialist advisor to handle that properly.

In this case, no GAR meant no complication.

Protected tax-free cash. Some older plans allow more than the standard 25% to be taken tax-free. Consolidation can remove that protection, so always check first.

Exit penalties. Not common in newer plans, but some older contracts still carry them. Worth knowing the cost before you move.

In this case, none of the above applied. Consolidation was the right call, and the client heads into the next decade in a much better position.

Why acting now makes sense

The main advantage our case study had was time. For anyone looking to consolidate pensions with the same provider, ten years before retirement is a proper window to get things sorted.

A lot of people only arrange for a review a couple of years before retirement. If a pension is sitting in an older contract with higher charges every year that passes is money not working as hard as it could.

Some older contracts also still run under pre-Pension Freedoms Act 2015 rules, which can limit what is available at retirement. Without a review, a client may end up taking their pension at 75 simply because the old plan has not been updated.

Furthermore, some pre-Pension Freedoms Act contracts only allow the fund to buy an annuity at retirement. If that is the case, the client still receives an annuity.

So moving into a modern plan for the reasons above is a necessity, so you may as well move sooner rather than later, because you will have to do it anyway.

Getting the right advice matters

Consolidating pensions, even with the same provider, is not something to do without proper advice. What looks like a straightforward tidy-up can go wrong if you close the wrong plan or miss a benefit.

Find out if you need a financial advisor for your pension. At Regulated Advice, our advisors review what you have thoroughly before recommending anything.

We look at what you are paying, what you are getting for it, and whether it is working as well as it should be. If you want to look at whether it makes sense to consolidate pensions with the same provider, get in touch, and we will take it from there.