How to combine your pensions: merging multiple pension schemes
Last updated 1st October 2024
6 mins read
At any stage of your career, you may want to review how much you have saved in various pension plans and consider ways to manage them more efficiently. One method to achieve this is by consolidating your pensions.
If you're unsure how much is in each of your pensions and you have multiple accounts, it can be daunting to figure it all out.
Learn more about pension consolidation, the process, and whether it’s suitable for you in this comprehensive guide.
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What is pension consolidation?
Pension consolidation refers to merging most (or all) of your pension pots into one.
Throughout your working life, you may accumulate several pensions from different providers or schemes.
You might also have set up personal pensions, particularly if you’ve worked as a freelancer or self-employed.
At some point, whether near retirement or earlier, you’ll need to decide if combining your pensions or keeping them separate is the better option.
Your decision should consider factors such as the type of pensions you hold, their value, how well they are being managed, and whether any have special features or guarantees.
We’ll explore some of the things you should consider and ideally discuss with a financial adviser.
Should I combine my pensions?
There are several advantages to consolidating your pensions, such as:
Reducing costs
Potential for improved growth
Simplifying management
Keeping track of your pension savings
Can I save money by merging pensions?
Each pension you hold is managed separately, meaning each may have its own management fees.
Some may have higher fees, such as 1% or more, while others may charge less, perhaps around 0.5%.
Consolidating your pensions into one with lower fees can save you money over time. A financial adviser can help ensure you make the right decision and find a lower-cost fund if needed, as high fees can significantly reduce your pension's value over time.
A small change made early could save you substantial amounts in the long term.
Can merging pensions boost growth?
The performance of your pension funds can be a significant factor in deciding whether to consolidate.
With multiple pensions, some funds may have performed better than others, though remember that past performance doesn’t guarantee future returns.
It’s helpful to look for steady, long-term performance. A financial adviser might suggest moving your pensions into a better-performing fund.
Is it easier to manage one pension?
It’s generally simpler to manage one pension pot instead of several. However, it’s important to ensure your investments align with your risk tolerance, which may change as you approach retirement.
Additionally, having a single pot can make it easier to access your funds when the time comes.
Keeping track of pensions by merging them
With multiple pension pots from various providers, there is a greater risk of losing track of one or more of them.
Moving house, for example, can result in losing important documents, and if you forget to update your pension providers with your new address, you could lose track of your funds altogether.
Can I consolidate defined benefit pensions?
If you have a defined benefit (final salary) pension, you may be offered the chance to transfer it to a defined contribution scheme (which is more common).
This is a significant decision that should be considered carefully, as it involves trading a guaranteed income for a lump sum.
In most cases, it’s a legal requirement to seek financial advice before transferring a final salary pension, as the decision cannot be reversed.
Are there any disadvantages to pension consolidation?
While consolidating pensions is often a good idea, there are cases where it may not be the best option. Seeking advice from an independent financial adviser can help you weigh the pros and cons.
For example, if you hold a defined benefit pension or one with guaranteed annuity rates, it might not be in your best interest to consolidate.
Do any of my pensions offer guaranteed annuity rates?
Some pensions come with guaranteed annuity rates (GAR), which allow you to buy an annuity at a higher rate than the standard market offers.
If you have a GAR, it’s usually a strong reason to avoid transferring your pension, as you would lose this benefit. A financial adviser can help check if you have a GAR.
Are there penalties for transferring pensions?
You can transfer your UK pension to another registered scheme. However, transferring to an overseas scheme or withdrawing funds early can result in taxes being applied.
Additionally, some pension schemes may impose exit fees. After age 55, exit charges usually can’t exceed 1%, and newer schemes often do not charge exit fees at all.
Your adviser can help you navigate any potential penalties and ensure the transfer is in your best interest.
How do I decide whether to combine my pensions?
Your adviser will work with you to review your pension paperwork and help you understand your options.
They will provide tailored recommendations based on your retirement goals, as there is no one-size-fits-all solution for pension transfers.
You can also make additional contributions to your pension pot before retirement, such as transferring savings into your fund.
Am I saving enough for retirement?
If you want to check whether your pension pot is on track to meet your retirement goals, there are tools available to help. You can also consult with a financial adviser to assess your retirement savings strategy.
Get expert financial advice
Consolidating your pensions can simplify your finances and potentially increase your retirement savings.
By merging multiple pensions into a single fund, you can reduce management fees and streamline your investment approach.
However, it’s important to carefully consider any associated costs and your specific circumstances before proceeding.
We can connect you with a financial adviser who will provide expert advice tailored to your pension and retirement planning needs.