Should I consolidate my pensions?


Consolidating your pensions can save you time and money. 

Even if you have already been through the consolidation process it is highly likely that we can help you cut the total level of annual fees being deducted from your pension pot, by working with carefully selected investment partners we are able to act as your local connection to the global financial world but still provide an extremely competitive advice, administration and investment management service, NOT only in comparison to the national brands but also when compared to local firms. We are a Local, Independent company working for the benefit of our CLIENTS, NOT our Shareholders!

The following provides a brief overview of the benefits of pension consolidation and the key things we would consider before making any recommendation.

What is pension consolidation?

If you are like most people, you will have picked up several pensions over the course of your working life. Having a number of pensions with different providers can make it difficult to keep track of how they are performing, and how much you are paying in total charges. The paperwork alone is enough to put most people off! 

By combining your pensions into a single plan, you will obviously receive less paperwork and you can reduce how much you pay in overall charges.  

Many older-style pensions do not allow you to flexibly withdraw money from your pension. Consolidating your pensions into a new pension plan can provide you with more flexibility around how money is withdrawn at retirement. 

Four reasons why you might consider consolidating your pensions

1. It makes them easier to review

Keeping track of your pensions is not easy – particularly when you have several pensions with different providers. By combining your pensions together, it is easier to keep track of your pension monies and monitor how they are performing. With one pension, you have complete visibility over your money. You will only have to interact with one pension provider, saving you time. 

2. You can reduce your pension costs

There is a good chance that you will be able to reduce your pension costs by combining them together. All things being equal, the less you pay in charges the more left in your pot at retirement.

Some older-style pension plans came with extremely high charges built in, which will erode your pension value over time. 

3. Potential for improved investment performance

How your pension is invested is the critical factor in determining how it performs over time. 

Your pensions may only provide access to a limited or restricted range of investment funds, which may be underperforming in relation to their benchmark. Whereas modern pension plans can provide access to thousands of different investment funds. 

By consolidating your pension, you can increase the range of funds available to invest your pension monies in. This gives you more choice and flexibility to choose an investment strategy that is right for you.

4. More flexibility when it comes to retirement

It used to be the case that when you reached retirement, you had to use your pension to purchase an annuity. The rules changed in 2015, allowing people to flexibly withdraw an income from their pension pot.

Despite the rule change, most pensions are unable to facilitate flexible drawdown. Most people today flexibly withdraw an income from their pension and are surprised to learn that their current pension plan does not offer this facility. 

Therefore, you may need to merge your old pensions into a new pension plan if you want to take advantage of flexible drawdown. This is often a key reason people consolidate their pensions. 

Although there are clear benefits to combining your old pension pots, it is not for everyone. There are instances where you will be better off sticking with your current pension plans and our advice process will always highlight where this is the case, detailed as follows:-

1. You have a final salary pension

If you have a final salary pension, then best advice in most situations is to accept one of the options being offered by the existing final salary pension scheme. 

Final salary pensions, otherwise known as “defined benefit pensions”, provide a guaranteed income for life. There tends to be a spouse’s pension built in and the income tends to rise with inflation on an annual basis. These are extremely valuable benefits that will be lost if you wish to transfer your pension to another provider.

2. You have valuable guarantees 

Certain pensions come with valuable guarantees. “Safeguarded benefits” are defined as benefits that are not money purchase or cash balance benefits. This means defined benefits, guaranteed pensions including guaranteed minimum pensions and guaranteed annuity rates (GARs). Safeguarded benefits are typically lost if you transfer your existing pension.

We would always check with your pension provider whether you are entitled to safeguarded benefits before providing formal advice.

3. Your pension receives employer-matched contributions

If you are an employee, chances are that you and your employer both pay into your workplace pension. Typically, your employer will match your pension contributions up to a certain level.

If this is the case, then you do not want to transfer this pension to another pension – as you will lose the employer-matched contribution. 

You should check with your workplace pension provider to see if they will allow you to transfer in other pensions.

4. You will pay an exit fee when transferring away

Older pension policies may charge you an exit fee if you decide to transfer away. The exact amount and the terms under which a fee applies will vary between pension providers.

This can reduce the benefit of consolidating your pensions, even if there is a cost-saving to doing so. You will need to compare the exit fee payable with the annual cost saving to determine if this makes sense. 

What to check before consolidating your pensions

The below summarises the key things you should check before consolidating your pensions:

Valuable guarantees – make sure to check if your pension has any valuable guarantees (safeguarded benefits), as these will be lost if the pension is transferred. 

Investment costs – compare how much you currently pay in charges with how much you will pay once you have consolidated your pensions. 

Investment returns – check how your pension funds have performed over the last three to five years and compare this with the sector average. 

Investment range – check on the range of investment funds available to you with your current pension.

Retirement options – check on the options for withdrawing an income at retirement, and whether your current pension provides flexible drawdown. 

This is not an exhaustive list but covers the key points. You will need to weigh up the benefits and costs of consolidating your pensions to determine if it is the right thing for you. 

If you would like advice around pension consolidation, you can book in for a free initial consultation.

Before consolidating your pensions, we will review each of your existing pensions on an individual basis before making any formal recommendation. 

Is pension consolidation right for you?

Unfortunately, there is no one-size-fits-all when it comes to pension consolidation. What is right for one person is not right for another. Whether to combine your pensions will depend on the type of pensions you have and your personal circumstances. 

However, you be assured that we will always advise you on the best course of action.

Get in touch

Liam Starley

APFS Chartered Financial Planner

Scott Moorhouse

Senior Financial Advisor