Should I consolidate my pensions?

The key considerations for combining your retirement savings

If you have two or more private or workplace pensions, consolidating some or all of them in the same place can have benefits, though there are things to consider before deciding if moving them is the right option. This guide gives you an overview of what you need to think about when combining your pensions – and where to go for free guidance.

This guide is about moving private or workplace pensions

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What is pension consolidation?

If you have a number of jobs over your working life, you could build up several workplace pension pots via different schemes – as your pension doesn't automatically follow you to a new job. You might also have personal pensions, especially if you've been self-employed.

There are many types of pensions, each with different rules, features, and benefits. Pension consolidation means combining two or more pension pots into one – effectively bringing pension savings under one roof with one set of rules, features and benefits.

The good news is you don't need to work through the options on your own. There's free pensions guidance available to help you decide what's best for you.

For example, you might not want to consolidate all of your pensions into the same place – you could have a pension that comes with specific benefits that you'll lose if you transfer money out. Or there could be a reason to keep an existing workplace pension separate from some of your older pensions.

That could mean it makes sense to combine some of your pensions to a single provider, while leaving others separate. This is known as 'partial consolidation'. 

Below we explain a bit more around what to consider when thinking about consolidating a Money Purchase pension and why it's generally not a good idea to touch a Salary Scheme pension – and where to go to discuss your options.

The type of pension is important

Your choices around combining pensions will depend on the type you hold, and these can be broadly split into two categories:

Money Purchase (defined contribution) pensions

The majority of modern workplace and private pensions will be Money Purchase schemes (also known as 'defined contributions') – this is the type of pension that's usually associated with consolidation. This is where you build up a pot of investment money via a pension firm based on the contributions you (and your employer) have made, as well as how that money has grown over time. If you have a Money Purchase workplace pension and leave your job, you’ll often have two options: 

  1. Leave your pension where it is – even if you’re no longer contributing to it. 
  2. Consolidate your pension savings by transferring it into a new pension scheme – whether that’s a new workplace scheme, or another type of private pension. 
There are some circumstances where it might not make sense to consolidate a Money Purchase pension though. We take you through the key considerations for consolidating a Money Purchase pension below.
 

Salary Scheme (defined benefit) pensions

These are less common nowadays, though some older pension savers are more likely to have them, or those working in specific sectors.

With Salary Schemes, how much you get when you retire is based on your salary and how long you’ve worked for your employer. Depending on the scheme, you'll get a specified amount each year.

These schemes aren't generally associated with pension consolidation. It's unlikely to make sense to transfer money out of these types of schemes – they can be comparatively valuable and 'transferring out' could see you lose value and benefits. 

In fact, if your Salary Scheme pension is valued at £30k or more, you'll HAVE to take financial advice before transferring. For more on where to go for help in understanding your options if you have a Salary Scheme pension, see our Financial advice guide. 

 

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Key considerations for consolidating a Money Purchase pension

Whether you should consolidate pensions is a commonly asked question. It definitely eases the administrative burden having them in the same place, and can mean lower fees if you carefully choose which pension you're moving them to. Here are some key things to consider... 

  • Are there any perks in your existing pension that you'd be missing out on if you give it up? Some older Money Purchase pensions from the '80s and '90s had guarantees built into them – such as guaranteed annuity rates or more flexible ways to take any retirement or death benefits – that you could lose out on if you transfer your pension. If you're unsure, check with your pension provider before you do anything. 

  • How do the charges and investment choices of your old pension(s) compare to the one you will be consolidating into? Every pension pot you have will be managed separately and will have its own annual management fees. These could range vastly, with some charging 1% or more, and others 0.5% or less. The impact of fees therefore should be a big factor in any decision making – you don't want to end up transferring a pension into a scheme that charges you significantly more, as this will eat into your money.

    Start by checking the charges you’re currently paying. If you aren’t able to find out these figures from your annual statement or via an online portal, contact your scheme administrator or pension provider directly.
  • Are there any exit penalties that apply to the schemes? Some schemes will still have charges for you to leave, meaning moving your money out will deplete the size of your pot. Make sure you know what these might be before you think about consolidation.

  • Will consolidating make it easier to keep track of your pension savings? The more pensions you have, the more likely it is that you'll forget about some of them – especially if you move home. While it's always a good idea to let your pension provider know your new address so you'll continue to get statements, your pensions won't disappear just by you forgetting about them. Find out more about tracing lost pensions.

  • Will consolidating give you greater investment choices? Where you are in your investment journey might dictate how important this is to you. For example, the closer you are to retirement, the less risky you normally want to be in your investment choices.

  • Will consolidating give you access to better annuity rates? If you decide to buy an annuity, you might get a better rate with one larger pot. An annuity gives you an income for life in exchange for your pension pot, and you might be able to access better rates the larger the pot of money. 

  • If you've small pots (under £10,000) it's not always beneficial to consolidate. That's because you can cash in up to three of these smaller pots without triggering the Money Purchase Annual Allowance (MPAA). The MPAA restricts how much you can save into a pension and gain tax relief to £10,000/year (from £60,000/year). So if you've small pots, consider leaving them untouched if you plan to carry on pension saving.
  • Don't close a pension your current employer is contributing to. Transferring this type of pension while you're still paying into it could risk losing access to the contributions your employer has made. If it's not a great scheme, instead you may be able to regularly sweep the money into a pension you prefer, though you'll likely need expert advice on the best way to do this.

 

Make use of the FREE pension guidance that's available

Knowing how to get started with consolidating your pensions can be hard, but you have options depending on how old you are and how complex your pension arrangements are. Getting free guidance or advice is crucial – get it wrong and it can cost you.

Aged 50 or over? Go to Pension Wise 

MoneyHelper's service Pension Wise is backed by the Government and offers free, impartial guidance. To get an appointment you must:

  • be aged 50 or over and have a UK-based Money Purchase (defined contribution) pension pot/s (this could be a personal or workplace pension), or
  • have inherited a pension pot, or are able to take your pension early due to ill health, if you are under 50.

It's a good idea to be a bit prepared before your appointment to get the most out of it, for example making sure you know what sort of pensions you have and their value. For more info see the Pension Wise website on how to prepare

Appointments last for about an hour and afterwards you will get a document summarising your pension options, including your next steps, personalised information based on your situation and details of where to get further support.

Under 50 or only have a Salary Scheme? 

As explained above, you need to be 50 or over to get a Pension Wise appointment. That's because normal minimum pension age is currently 55 and the Pension Wise appointment is about the different ways you can take money out of a pension. You can only have an appointment before age 50 if you're in ill health or inheriting a pension.

You can still however get any guidance you might need if you don't meet the criteria by using its chat function or calling the helpline on 0800 011 3787, or use the MoneyHelper site for more info.

Complex pension arrangements or high-value pensions? You might be best with financial advice

The free options above will give you guidance and explain your options, but they will not give you product recommendations or work out a detailed plan for your money. For that, you'd need independent financial advice, which is a regulated industry and you'll need to pay for it. 

However, if you have complicated pension arrangements or larger amounts of pension savings, seeking advice from an independent financial adviser (IFA) is often a very good plan. You can ask the adviser for bespoke advice and someone to pick products and create a financial plan for retirement. And even though you'll have to pay for their services, it could mean you avoid making costly mistakes by trying to go it alone.

Different financial advisers will have different charging structures. For more on this and the services they can provide, see our Financial advice guide.

How do I consolidate my pension?

If you’re sure that pension consolidation is right and you've spoken to all the appropriate people, here's what you need to do to get started. Remember, if you're at all unsure what to do even after getting your free pension guidance, or you think your circumstances are complicated, then it is always best to seek independent financial advice.

1. Gather information on all existing pension schemes 

This includes details of providers, policy numbers and the current value of each pension pot. If you know you had a pension with a previous employer, but you're struggling to track down the details, try contacting your previous employer. They should be able to provide you with information about the scheme you were enrolled in while you were working for them, including the contact details of the provider.

Lost track of a pension? Try the Pensions Tracing Service. If you think you might have an old pension somewhere, but you’re not sure what the details are or who the provider is, the Government’s free Pension Tracing Service can help.

Before using the service try to collect as much information as you can, including your old employer’s name, how long you worked there, the company’s last known address and anything else.

2. Review the terms and conditions of each pension

As explained above in this guide, the benefits of some pensions you have may mean it is not beneficial to consolidate them. So this is the time you need to look at all the terms and conditions of each pension and make sure you are happy.

Also, employers don’t usually agree to continue pension contributions into a pension held elsewhere. So, if your employer is still paying into your pension it usually makes sense to leave it where it is. But once you’ve left that employer, or if they’ve stopped paying in, you’re under no obligation to stick with the same provider.

3. Select a pension to consolidate into

As part of this step, you'll need to decide whether to move all of your pots into an existing scheme or whether to start a new pension. If you decide to start an entirely new pension, then you need to make sure it is one that accepts pension transfers.

If you want to properly take control, you can look at a Self Invested Personal Pension (SIPP) where you have a huge range of investment choice (even individual shares across the world, funds or property funds), just like if you were investing outside a pension. They're offered by the likes of AJ Bell*, Fidelity*, Hargreaves Lansdown* and Interactive Investor*. See full info in Cheap SIPPs.

Yet you must be comfortable making the choice and doing your own research (or paying an advisor to do it).

4. Transfer your pensions

If you’re sure that consolidating is right for you, you need to tell your current provider (or a new provider) you want to consolidate your separate pensions. 

You’ll need to check if:

  • your existing pension scheme allows you to transfer some or all of your pension pot
  • the scheme that you wish to transfer into will accept the transfer

If that's all fine, they’ll be able to start the consolidation process. The new provider should contact your existing pension providers for you to transfer your money to your new consolidated pension plan. 

A final word of warning... beware pension scams 

Pension savings are big targets for fraudsters. If someone contacts you unexpectedly offering to help you transfer your pot, it’s likely to be a scam. You can use the FCA's ScamSmart investment checker if you're unsure of anything. But when it comes to pensions, it's always best to play it safe and err on the side of caution. 

 

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