Should I Consolidate My Pensions?
If you have changed jobs several times, you may have accumulated a collection of workplace and personal pensions.
Bringing them together could make your retirement savings easier to understand and manage. However, having several pension pots does not necessarily mean that consolidating them is the right decision.
Some pensions include valuable guarantees, protected retirement ages or other benefits that could be permanently lost following a transfer. Before making any changes, it is important to understand what you have, what you are paying and what you could be giving up.
What is pension consolidation?
Pension consolidation means transferring some or all of your existing pension pots into one pension arrangement.
For example, someone might have:
A workplace pension from a previous employer
Several older defined-contribution pensions
A personal pension they opened themselves
A current workplace pension receiving ongoing contributions
They could choose to transfer some of the older pensions into a single arrangement.
Consolidation does not have to be an all-or-nothing decision. You may decide to combine certain pensions while leaving others where they are because they contain valuable benefits or remain connected to your current employment.
Why might you consider consolidating your pensions?
There are several potential reasons for bringing pensions together.
A clearer view of your retirement savings
Having one main pension could make it easier to see how much you have accumulated and whether you are on track to meet your retirement objectives.
With several providers, it can be difficult to keep track of balances, investments, charges and projected retirement benefits.
Less administration
Consolidation could reduce the number of statements, online accounts and sets of paperwork you need to manage.
It may also make it easier to keep your personal details and beneficiary nominations up to date.
Easier investment management
Different pensions may be invested in different ways, sometimes without you realising it.
Bringing suitable pensions together could make it easier to:
Understand your overall investment strategy
Check whether the investments match your attitude to risk
Avoid unnecessary duplication
Monitor investment performance
Make changes as your retirement approaches
However, investment performance is not guaranteed, and past performance is not a reliable indicator of future results.
Reviewing pension charges
Older pension arrangements can sometimes have higher or more complicated charges than modern plans.
Consolidating into a lower-cost pension could reduce the amount being deducted from your retirement savings. However, charges should never be considered in isolation.
A pension with higher charges might also provide guarantees or benefits that are more valuable than the potential saving.
When might consolidating be a bad idea?
Transferring a pension is normally irreversible. Once valuable benefits have been surrendered, they usually cannot be reinstated.
Before transferring, check whether any of your pensions include the following features.
Guaranteed annuity rates
Some older pensions offer a guaranteed annuity rate that could provide a higher retirement income than might otherwise be available on the open market.
This guarantee could be lost following a transfer.
Protected pension ages
The normal minimum pension age is generally due to rise from 55 to 57 on 6 April 2028. However, some pensions may allow benefits to be accessed earlier because they include a protected pension age.
That protection might not transfer to a new arrangement, depending on the circumstances and how the transfer is completed.
Protected tax-free cash
Certain older pensions may allow the member to take more than the standard 25% tax-free amount.
This entitlement could be affected or lost on transfer.
With-profits bonuses
A with-profits pension may contain guaranteed bonuses or the potential for a terminal bonus.
The provider might also apply a market value reduction if the pension is transferred or accessed at a particular time.
Exit penalties
Some pensions apply a charge when the policy is transferred before a specified date.
An exit penalty could outweigh the benefits of moving the pension, particularly if the charge will disappear in the near future.
Preferential charges
An older workplace pension might benefit from charges negotiated by the employer.
Do not assume that an older pension will automatically be more expensive than a new one.
Life insurance or other benefits
Some pension contracts include life cover, waiver of contribution or other insurance benefits. These could end if the pension is transferred.
MoneyHelper recommends checking for exit fees, guarantees, with-profits bonuses and protected pension ages before combining defined-contribution pensions.
What about final-salary pensions?
A final-salary or career-average pension is a type of defined-benefit pension.
Rather than providing an investment pot, it normally promises an income for life based on factors such as your salary, membership and the scheme’s rules. It may also include inflation protection and an income for a surviving spouse or dependant.
Transferring a defined-benefit pension normally means giving up these guarantees in exchange for a transfer value that is invested within a defined-contribution pension.
The Financial Conduct Authority’s starting position is that retaining safeguarded benefits will be in the best interests of most consumers. A transfer should only be recommended where it can be clearly demonstrated to be suitable.
If your defined-benefit transfer value is more than £30,000, you are legally required to obtain advice from an appropriately qualified regulated financial adviser before the scheme can complete the transfer.
For most people, a defined-benefit pension should not simply be combined with their other pensions for administrative convenience.
Should you transfer your current workplace pension?
Be particularly careful with a pension connected to your present employer.
Transferring the entire pension could affect future employer contributions or your membership of the workplace scheme. Employer contributions are a valuable part of your overall remuneration and should not be given up without careful consideration.
Some workplace schemes allow partial transfers while remaining an active member, but this depends on the scheme’s rules.
Check with the provider and your employer before taking any action.
Questions to ask before consolidating
Before transferring any pension, consider the following questions:
What type of pension is it?
Does it contain any guarantees or safeguarded benefits?
Will I lose a protected retirement age or protected tax-free cash?
Are there any exit charges or penalties?
What am I currently paying in charges?
What would I pay under the new pension?
How is each pension currently invested?
Would the new investments match my objectives and attitude to risk?
Is my employer still contributing to the pension?
Will consolidation genuinely improve my retirement plan?
What advice and ongoing service charges will apply?
Will I still have access to the retirement options I may need?
The objective should not simply be to reduce the number of pension statements you receive. A transfer should produce a meaningful improvement after considering the benefits, costs, risks and your wider retirement plans.
How to review your existing pensions
A sensible starting point is to gather up-to-date information from every pension provider.
Ask each provider to confirm:
The current pension value
The transfer value
The full charging structure
The investments currently held
Any exit penalties
Any guaranteed annuity rates
Any protected retirement age
Any protected tax-free cash
Any with-profits bonuses
Any insurance or safeguarded benefits
Whether partial transfers are permitted
You can then compare the pensions properly rather than making a decision based only on fund values or charges.
If you have lost track of an old workplace pension, the government’s Pension Tracing Service may help you find the relevant provider or scheme administrator.
Is pension consolidation right for you?
There is no universal answer.
Consolidation can make pensions easier to understand and manage. It might also help you create a more coordinated investment and retirement strategy.
However, convenience alone is not a sufficient reason to transfer. You could lose guarantees, protected benefits or favourable charges that are impossible to recover.
The right decision depends on:
The type of pensions you hold
Their existing benefits and charges
Your investment preferences
Your retirement plans
Your need for flexibility
Your wider financial circumstances
Not sure what pensions you have?
A pension review can help you understand your existing arrangements, identify valuable benefits and assess whether keeping or consolidating particular pensions may be appropriate.
If you would like help reviewing your pensions, contact Rapidus Wealth to arrange an initial conversation.
Suggested button: Book a pension review
The value of investments can fall as well as rise, and you may get back less than you invest.
Transferring a pension may not be suitable and could result in the loss of valuable guarantees or benefits. Tax treatment depends on individual circumstances and may change in the future.
This article is for general information only and does not constitute personal financial advice.
