Should I combine my pensions?

Most workers will have multiple jobs at different companies before they retire, which means that they could end up with several workplace pensions.

You can combine these pension pots so that they sit together under one roof, but there are pros and cons of doing this. We help you weigh up your options.

In this article we explain:

• How to consolidate pensions?
• Five advantages to combining your pensions
• Four reasons not to consolidate your pensions
• What you should check before consolidating
• Should you transfer your pension to your new employer?
• Can I transfer my pension myself?
• Do I need financial advice to combine my pensions?
• Need help deciding whether to merge your pensions? Take our quiz
• Times Money Mentor’s FREE retirement tool

How to consolidate pensions?

If you have been employed during your working life then your employer will have set up a pension pot for you. That’s because of auto-enrolment rules which we explain in our pensions guide.

Each time you start a new job, you will probably end up with a new pension pot, often with a different provider.

But it’s possible to transfer older pensions into one pot with one provider – a process known as consolidating pensions.

Some people decide to move older pension pots into the newer one, but you should compare the providers to make sure that’s the best option.

Is it better to combine my pensions?

The biggest advantage of merging your pensions together is that it makes them easier to manage and reduces the likelihood that some of your savings will go missing.

Around 1.6 million savers have lost pension pots worth £19.4 billion in total, according to the Association of British Insurers (ABI). The average size of a missing pension pot is £13,000.

The ABI said they get mislaid because people fail to tell their pension providers when they move house.

If you think you might have lost a pension pot from a previous job, you can use the government’s pension tracing service.

We go into these points in more detail in this article, but combining your pensions could:

• Make them easier to manage
• Improve investment performance
• Reduce the cost
• Give you more flexibility

While it’s common for people close to retirement to think about consolidating their pensions, it’s also an option for younger workers who have accumulated a number of plans already.

But there are many factors to consider before you consolidate. Find out how we helped Lisa consolidate her pension pots in our Money SOS.

Five advantages to combining your pensions

Merging your pots together could also reduce your fees and give you access to a wider range of investments. 

All this could result in a higher pension income and a more comfortable retirement. You might even be able to stop working earlier.

Here are some reasons to consider merging your pots:

1. Less admin for you

If you have lots of pension pots, consolidating them into one scheme can remove the hassle of managing lots of pension plans with different providers.

It cuts down on paperwork and you only have one pension to monitor and one company to contact.

It can also make it easier to check that your fund is on track to meet your retirement goals.

Combining your pensions on a modern investment platform would enable you to manage everything online – perhaps even through a mobile app.

2. More investment potential

Pension consolidation can be right for you if you have lots of pots that aren’t working hard enough to grow your savings.

By that, we mean the pension providers are not making investment decisions that boost the value of your retirement funds.

It can be hard to monitor the performance of multiple schemes.

So you may be better off taking control of your money by switching to a provider that offers a wider range of investment options than might be available through older schemes.

It can make it easier to track how well a fund is performing.

3. Save on fees

Combining your pensions could save you money on charges.

If you have got multiple plans, you will be paying for the administration of each one which makes it difficult to keep track of the overall cost. It’s also not very cost-effective, especially if some of the providers are expensive.

Since fees eat into your investment returns and the amount of money you have when you retire, you should choose the best-value pension available.

For example, imagine at the age of 30 you had £15,000 in your pension pot From then you contributed £250 a month until you retired at 67, assuming an investment return of 5% a year

• If the pension plan levied charges of 1.5% your pot would be worth £278,098
• But if you chose to switch to a provider charging annual fees of less than 0.5%, your pot would be worth £357,094 instead

Find out who we rate as the best ready made personal pension in our independent ratings.

4. You’re less likely to lose your pension pots

Having multiple pension pots with lots of different providers make it very difficult to keep track of them all.

By combining them into one place with one provider you minimise the risk of losing a pension.

The good news is that if you have misplaced a pot then you can use the pension tracing service to find it.

5. Flexibility in getting access to your money

Older pension schemes are unlikely to offer flexible ways to gain access to your money at retirement.

Combining your pensions might give you greater freedom and choice with your retirement savings.

Some schemes that were established before the dawn of pension freedoms in 2015 may not be as flexible as newer pensions.

Before 2015, retirees had to buy an annuity – or guaranteed income for life. Income drawdown, otherwise known as flexi-access drawdown, came into effect in 2015. This allows people to withdraw money from their pensions from the age of 55.

However, if you remain invested in an older pension, it may not have the option for income drawdown. This would mean that you’d need to transfer out of your pension in order to start income drawdown.

Four reasons not to consolidate your pensions

However, transferring a pension isn’t for everyone which is why we have outlined some reasons why you might want to stay put.

1. You could sacrifice valuable benefits

Any previous workplace schemes you hold may offer valuable benefits that would be costly to give up if you transfer your money out.

Here are some examples of valuable benefits you might miss out on:

• A guaranteed annuity rate: given the fall in annuity rates in recent years, a promised level of income is worth keeping hold of.
• Employee schemes might come with enhanced tax-free cash sums, allowing you to withdraw more than the standard 25% of your pot allowed under drawdown.
• Schemes might come with a “protected pension age” which lets you take the pension earlier than 55.
• Your scheme might also come with a life insurance policy built-in or critical illness cover, which could be expensive to replace.

Find out: What type of annuity is best for me?

2. You have a final salary pension

Checking the benefits is particularly important for those lucky enough to be in a final salary pension scheme, also known as a defined benefit pension.

We explain the difference in our simple pensions guide.

If that’s you, it will most likely make sense to remain in the scheme as it will offer a guaranteed income for life and inflation protection (where payouts rise each year in line with the cost of living).

Final salary schemes also pay out to a surviving widow or widower if you die after reaching the scheme’s pension age.

3. There could be big exit fees

If any of your current providers charge huge exit fees, it will be important to weigh up the trade-off between these and the amount you wll save on annual fees by switching.

If you make this comparison over a period of five years, it may become clear it’s not worth moving.

But if you are a younger saver and you’re not going to be using your pension for another ten years or more, you may find it is cost effective in the long term to switch.

Find out: The impact of fees on investment returns

4. Your existing pensions are performing well

If any of your current pension schemes have generated strong returns and your money is growing at a rate that you’re happy with, moving might not be right for you.

Find out which providers have been given top marks for their ready-made personal pensions

Can I move all my pensions into one?

You would have to transfer out of one or more and move them into another one, this could be with an existing provider or with a new one.

Before transferring out of a pension scheme, make sure you aren’t going to be giving up any valuable guarantees. You should also be wary of exit fees.

We have made a checklist:

• Find out if your pension plan offers any valuable guarantees or benefits that come as part of your existing package. Consider carefully whether you want to give these up
• Find out if your existing scheme comes with life cover or critical illness insurance that you might miss out on by moving
• Checking the value of benefits is particularly important for those with a final salary pension, also known as a defined benefit pension scheme. If you are lucky enough to be in such a scheme, it will almost always make sense to stay put as they offer a guaranteed income for life and inflation protection
• Check all schemes for exit fees. These kick in should you move your pension pot to another provider. If they are sky-high then moving could be a false economy.

When weighing up whether consolidating your pensions is the right move, you might want to take financial advice from a professional. An adviser will make sure you aren’t missing out on gold-plated benefits.

If you want more help around this topic that’s tailored to your circumstances, Kellands* is offering all of our readers a free hour-long session* with one of its independent financial advisers. They can get a good idea of your financial goals, and help you take the first step to achieving them.

Should I transfer my pension to my new employer?

You can roll all of your pensions into one of your workplace schemes.

If you have just changed jobs, you might want to move your other pension pots into the defined contribution pension scheme that your new employer will have opened on your behalf.

But make sure you do your research. 

If it’s a low-cost workplace pension scheme with reasonable investment options it could be a good choice.

Alternatively, you could make your own pension arrangements, such as open a self-invested personal pension (SIPP). You can open a SIPP through a fund supermarket where you will be in charge of selecting your own investment funds.

If you would prefer to leave the investment decisions to an expert, a ready-made personal pension could be suitable. Find a low-cost ready-made pension in our independent best buy tables.

Can I transfer my pension myself?

If you want to transfer a defined contribution pension, it is usually easy to do it yourself. You will need to complete an application form to request a transfer.

Many pension providers now let you submit a transfer request online which makes it a lot easier to consolidate your pensions.

Usually you just tell the new pension company that you want to transfer an old pension and provide your policy details. It should then manage the rest of the transfer on your behalf.

If you want more information on pensions, check out our guide. 

How long does it take to combine pensions?

To transfer your pension, you will probably need to provide some information and complete an application form.

Finding the right information may take time, but once you have it, the majority of pension transfers take two to three weeks to complete.

Some may take three months or longer, but it depends on your provider and whether there are any issues moving the money or investments across to the new company.

You might want to contact your existing pension scheme provider before you transfer.

Do I need financial advice to combine my pensions?

If you are unsure whether switching out of a scheme is the right move, you can seek help from an independent financial adviser that specialises in retirement planning.

A financial adviser will ask you questions to establish your:

• Current financial situation
• Long-term financial goals
• Current pension products

There will be a fee to pay but it’s important to get this right because pension transfers are a one-way street: once you have switched, you can’t go back. 

You can find a specialist adviser at unbiased.co.uk* or vouchedfor.co.uk.

For free guidance – not tailored advice – contact the Pensions Advisory Service.

If you are 50 or over, you can get free, impartial pensions guidance from Pension Wise, including phone appointments and online information. Visit Pension Wise or call 0800 138 3944.

If you are transferring out of a final salary scheme worth more than £30,000, you have to get advice first.

It is compulsory under rules set by the Financial Conduct Authority, though you are not obliged to follow the recommendations. Some public sector pension schemes cannot be transferred.

It’s also worth knowing that pension savings are big targets for fraudsters. If someone contacts you unexpectedly and says they can help you transfer your pot, it’s likely to be a scam. 

Take our pension consolidation quiz

It can be tricky trying to work out whether to merge your pension pots.

We have created a quiz that can help you understand your options, depending on your work history, the size of your pensions and how you like to manage and invest them.

Give it a go and find out whether consolidating is right for you.

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