Overview
Consolidating your pensions
Keeping track of your retirement savings is not always easy, especially if you have joined several workplace pension schemes over the years. Knowing how to consolidate pensions in one plan can make it easier to manage your savings.
It can be a complex decision to work out whether you would be better or worse off combining your pensions, but making the most of your pensions now could have a significant impact on your retirement.
Having several pensions can make it difficult to keep track of the charges. By consolidating pensions into a new plan, lower charges could be available. However, it’s important to fully understand the charges on existing plans before considering consolidating pensions.
Consolidating pensions into one pot can reduce paperwork and make it easier to estimate the income you can expect to receive in retirement. However, before the decision is made to consolidate pensions, it’s essential to make sure there is no loss of benefits attributable to an existing pension.
What is it?
What is pension consolidation?
Pension consolidation is the process of combining multiple pension pots into one scheme or retirement savings product. Many people choose to do this to help them manage their retirement savings and track their progress more easily.
People can work for several different employers during their careers, often joining each new company’s workplace pension scheme every time they change jobs.
Why consider consolidating your pensions?
Industry reports have highlighted the need for and benefits of pension consolidation. The Lost Pensions Survey, published by the Pensions Policy Institute, revealed that in 2022 the total value of assets held in lost or forgotten pensions in the UK stood at £26.6 billion.
In addition, a Financial Conduct Authority paper shows that 89% of all individual personal pensions are in schemes that are closed to new business, and some £250 billion of assets held in those schemes might benefit from pension consolidation.
Considerations
Managing your retirement savings in one place
There are many things to consider when looking to consolidate your pensions, such as the types of pensions you hold.
Your existing pensions may have valuable guarantees that you could lose if you transfer out of the scheme, your current pension may have higher or lower product charges, and there may also be charges to transfer your pension to a new provider.
Check your charges – Check the charges in your plans to see if you’ll be paying more or less in charges as a result.
Check for exit penalties – Some pensions charge an exit penalty if you want to move your money elsewhere. You need to establish whether it’s worth transferring your pensions into one plan, or if the costs will outweigh the benefits.
Check your pension performance – It’s important that you review your pension situation regularly. If appropriate to your particular situation, and only after receiving professional financial advice, pension consolidation could enable existing policies to be brought together in one place, ensuring they are managed correctly in line with your wider objectives.
A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
The tax implications of pension withdrawals will be based on your individual circumstances, tax legislations and regulation which are subject to change. You should seek advice to understand your options at retirement.
