Martin Lewis and pensions expert issue warning over 'biggest' mistake people make

Martin Lewis, the renowned money-saving expert, was accompanied by pension gurus on his latest BBC podcast to tackle the most pressing concerns listeners have about their pensions. He highlighted that the "biggest single pension question we have had" revolves around the idea of merging multiple pension pots.

It's not uncommon for individuals to accumulate several pension pots over time, often as a result of switching jobs or by opening various private pension accounts. Addressing this issue, one listener posed the critical question: "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? ".

The Money and Pensions Service's head of guidance, Charlotte Jackson, weighed in on the matter, stating that consolidating pensions is a deeply personal choice. She personally prefers to keep her finances "things neat and tidy in one place", Birmingham Live reports.

However, she cautioned: "There is a big cautionary 'but' in there," which prompted a chuckle from Martin Lewis as he probed: "What's your big but Charlotte? ".

Charlotte then elaborated: "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 highlighted the practicality of consolidation, saying there's "nothing wrong with being biased towards consolidating because it makes your life easier", while Charlotte prompted individuals to reflect on their pension status.

Charlotte outlined key considerations for savers pondering pension consolidation, stressing the importance of understanding the associated benefits and unique features each pension pot offers, such as spousal protections after death, irrespective of the investment's monetary value. She noted: "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."

She cautioned that these crucial specifics are often nestled within "the devil in the details", advising savers to consider future financial treatments, highlighting the flexibility multiple pots provide: "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."

Tideway Wealth's wealth manager Mihir Choughule added a further reflection point regarding the decision-making process based on life stage, summarising: "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.