Should You Merge Your Pensions 5 Years Before Retiring?

Should you merge pensions when retirement is only five years away? A question in a UK pensions Facebook group caught my eye this week, and it’s one I suspect plenty of Honest Pensioner readers are asking too.

A man about to turn 54, currently out of work, has two pension pots: just over £150,000 with Standard Life and £115,000 with Aviva. He plans to retire in about five years and wanted to know whether he should merge them.

The only reply he’d had was: don’t put all your eggs in one basket. It sounds wise. In this case, it mostly misses the point.

Before starting Honest Pensioner, I spent around 15 years as a mortgage broker and consumer finance consultant. I never advised on pensions, but the same rule applied to every switch I looked at, whether a remortgage or a replacement critical illness policy: start with the costs. How much would the client win, and how much could they lose? Older critical illness policies often had better benefits than new ones, so a cheaper replacement could quietly leave a family with less protection. The lesson stuck: never take anything at face value. Read the small print, and make sure the numbers add up.

So here’s an honest, numbers-first look at whether you should merge pensions in the last five years before retiring, what could go wrong, and exactly what to check first.

This is general information, not financial advice. Everyone’s circumstances are different. For guidance on your own pensions, book a free Pension Wise appointment or speak to a regulated financial adviser.

Can You Merge Pensions Five Years Before Retiring?

Yes. You can merge pensions at any point, whether you’re 35 or 64. The jargon is pension consolidation, and for most personal and workplace pots it’s routine: the provider you’re moving to requests the money, and the transfer usually completes within a few weeks.

Five years out is a good moment to merge pensions, because you still have time to fix any problems before you start drawing an income.

But being able to merge pensions isn’t the same as it being worth doing. That depends on what’s inside each pension.

First, check what type of pensions you have

Everything in this guide is about defined contribution pensions. These are invested pots built up from your and your employer’s payments, like the Standard Life and Aviva plans in the example.

If either of your pensions is a final salary or career average scheme (also called defined benefit), stop. Those pay a guaranteed income for life and are rarely worth giving up. If one is worth more than £30,000, you must take regulated advice before transferring it.

Can I merge pensions into one with Aviva, Scottish Widows or Nest?

Usually, yes. Most big providers, including Aviva, Scottish Widows, Nest, Aegon, Royal London and Legal & General, accept pension transfers in. You contact the provider you want to keep, give them the details of the other pension, and they request the money for you.

Compare its charges and fund choice first. The rest of this guide explains what to look for.

Why People Merge Pensions: The Genuine Benefits

There are good reasons to merge pensions, so let’s be fair about them first.

• One pot, one login, one statement. It’s easier to see what you’ve got.
• Simpler retirement income. Taking tax-free cash and income from one pot beats juggling two sets of forms.
• Possibly lower charges. Moving the dearer pot to a cheaper provider saves money every year.
• Better fund choice. One provider may offer funds that suit you better as you approach retirement.
• Less chance of losing track. Fewer pots means less risk of one going astray when you move house. Millions of UK pots are already lost, as our guide to lost pensions explains.

Notice what’s missing: faster growth. When you merge pensions, growth depends on the funds you hold and the charges you pay, not on how many companies hold them.

7 Costly Mistakes to Avoid Before You Merge Pensions

These traps turn a sensible tidy-up into an expensive mistake, and most hide in the small print of older pensions.

1. Losing valuable guarantees

Some older pensions, especially those started in the 1980s and 1990s, carry guarantees newer plans don’t offer:

• A guaranteed annuity rate. A lifetime income at a fixed rate, often far better than anything you could buy today.
• Protected tax-free cash. Some older plans allow more than the usual 25% tax-free, and the extra is usually lost if you move.

These can be worth thousands, far more than any charge saving. If you merge pensions that carry them, they’re gone for good.

2. Losing a protected pension age

At the moment, most people can take money from a pension from age 55. From 6 April 2028, that minimum age rises to 57. Some pensions have a protected pension age that lets you keep accessing them at 55.

That protection is normally lost if you transfer on your own, surviving only in cases such as a block transfer.

If you were born between 6 April 1971 and 5 April 1973, pay particular attention. You may reach 55, then lose access from April 2028 until 57. Ask each provider whether your plan has a protected pension age.

3. Paying exit fees or market value reductions

Most modern pensions let you leave free of charge, but some older ones don’t. Watch for:

• Exit fees, sometimes a percentage of your pot.
• Market value reductions on with-profits funds. These can cut your transfer value, though they’re often waived at your selected retirement date.

Waiting until that date could mean leaving penalty-free.

4. Chasing a charge saving that barely matters

Charges only matter once you turn them into pounds. A 0.1% difference is surprisingly small, as the worked example below shows.

5. Choosing a provider because it ‘did better’

In the example, Standard Life ‘seemed to be doing better’. But past performance tells you little about the next five years.

The difference is almost certainly down to the funds, not the company, and you can usually switch funds for free without moving provider.

6. Paying an adviser more than you save

Some advisers take a percentage of your pot, and on £265,000 even 1% is £2,650, more than three years of the likely saving when you merge pensions of this size.

7. Falling for a pension transfer scam

Anyone looking to merge pensions after a job loss is a target for scammers. Be wary of cold calls or messages offering a ‘free pension review’, overseas investments or early access before 55.

Always check a firm on the FCA register and use the FCA’s ScamSmart tool. Pension scams often start with a cold call, and our guide explains the pressure tactics scammers use.

Merge Pensions Worked Example: Is It Worth It in Pounds?

Let’s put real numbers on it. Standard Life charges 0.5% a year, and Aviva is ‘slightly less’, so we’ll assume 0.4% for this example.

Charge Yearly cost Standard Life (£150,000) 0.5% £750 Aviva (£115,000) 0.4% £460 Total kept separate   £1,210 Merged into Aviva (£265,000) 0.4% £1,060 Merged into Standard Life (£265,000) 0.5% £1,325

Moving the Standard Life pot into Aviva saves about £150 a year, or roughly £750 over five years (a little more with investment growth). Moving the other way would actually cost him around £115 a year more.

So the rule of thumb is simple. If merging costs more than about £750 in total, through exit fees, adviser fees or lost guarantees, it doesn’t pay on charges alone over five years. Even when it’s free, the money saved is modest. The stronger reasons to merge pensions are simplicity and better funds, not the charge.

If merging is part of a bigger retirement plan, such as downsizing or a later-life mortgage, let a mortgage affordability calculator find out roughly what lenders might offer before you decide how to take your pension.

Why Your Investments Matter More Than Your Provider

With five years to go, the biggest risk isn’t which company holds your pension. It’s a big market fall just before you retire.

Many default funds track global shares, typically around 70% in the US, where a handful of tech giants make up roughly a third of the S&P 500. In 2022, when the S&P 500 fell about 20%, those seven fell roughly twice as hard.

That doesn’t mean a crash is coming, but it’s worth knowing what you own. Ask each provider:

• Which funds am I invested in, and how much is in each?
• Am I in a lifestyle or target-date fund that automatically moves into lower-risk investments as retirement approaches?
• Does that switch suit how I plan to take my money: drawdown, an annuity, or taking it all as cash?

Getting this right protects you far more than any decision to merge pensions ever will, and switching funds is usually free.

Is ‘Don’t Put All Your Eggs in One Basket’ Right?

For most insurer-run pensions, it’s not the risk people think.

Personal pensions run by big UK insurers are usually set up as contracts of long-term insurance. If the insurer failed, the Financial Services Compensation Scheme can cover these at 100% with no upper limit. Self-invested personal pensions (SIPPs) are different, with protection typically capped at £85,000.

So keeping two insurers rather than choosing to merge pensions doesn’t usually make you safer. Real diversification comes from what you’re invested in. Ask your provider how your plan is covered.

Do You Need a Financial Adviser to Combine Pensions?

Not by law, if both are defined contribution pensions without safeguarded benefits. Advice is compulsory only for safeguarded benefits, such as a final salary scheme, worth over £30,000.

Still, with £265,000 at stake, a proper retirement plan could be money well spent. If you pay for one:

• Use an independent financial adviser, and check them on the FCA register.
• Ask for a fixed fee rather than a percentage of your pot.
• Ask what the advice covers: just the transfer, or a full plan for how you’ll take your income?

Before paying anyone, book a free Pension Wise appointment. It’s a government-backed service for anyone 50 or over with a defined contribution pension, covering your options, the tax and scams. It won’t pick a pension for you, but it will help you ask better questions.

A Simple 5-Step Plan Before You Merge Pensions

1. Gather your paperwork. Get the latest statement for each pension, or log in online.
2. Write to each provider. Ask in writing about guarantees, protected tax-free cash, a protected pension age, exit fees and any market value reduction.
3. Turn charges into pounds. Multiply each pot by its total yearly charge, then compare with what the merged pot would cost.
4. Review your funds. Check where your money is invested and whether it reduces risk as you approach retirement.
5. Book Pension Wise. Take your answers along to a free appointment before making any decision.

If both come back clean, it’s sensible to merge pensions into whichever offers better funds and lower charges. If either has something valuable, leave it and review the funds.

Other Things to Sort Before You Retire

While you’re at it, update your pension nomination forms and look at making a will and setting up a lasting power of attorney, so someone you trust can manage your money if you can’t.

If you’d like everything in one place for your family, our UK Life Organiser records every pension, policy and account.

Is Merging Pensions a Good Idea? The Honest Answer

So, should our man with £265,000 across two pensions merge them five years before retiring?

Possibly, but not to save on charges, which is around £150 a year at best. Any guarantee, protected pension age or exit fee wipes that out fast.

If both come back clean, choosing to merge pensions makes retirement simpler. Either way, his most valuable job is checking what he’s invested in. Money is only one part of the picture, too, as our guide to a longer retirement explains.

That’s the honest answer. Whether you merge pensions or keep them apart, never take a pension switch at face value. Read the small print, and make sure the numbers add up.

Frequently Asked Questions

This article is general information only, not financial advice. Rules and allowances can change. For guidance on your own situation, contact Pension Wise or a regulated financial adviser.