We recommend you get guidance or financial advice to make sure you’re making the best decision for you.
Everyone’s circumstances and needs are different. Here are some things to consider before you decide to combine pensions:
Could you lose valuable benefits?
Do any of your pension pots have valuable features, protections or guarantees? If they do, you would lose them if you transfer. This could include lifetime allowance protection such as Enhanced Protection or any Fixed Protections. Make sure you check what benefits you have in each pension plan – and what’s offered on the pension plan you’re transferring into – before making a decision.
Be aware that you might not want to or be able to transfer:
- A defined benefit pension (also known as a final salary scheme).
- A pension with a guaranteed annuity rate, other guarantees, a protected pension age or a protected tax-free cash amount of more than 25%.
- A pension you’re already taking income from.
- A pension that comes with life insurance or waiver of premium cover.
Compare charges and fees
You could benefit from a single set of charges when you combine pensions, but this doesn’t mean it’s necessarily cheaper.
- Pension plan 1 – Fund £50,000 – yearly charge rate 0.5% = £250 a year charge
- Pension plan 2 – Fund £50,000 – yearly charge rate 0.3% = £150 a year charge
- Pension plan 3 – Fund £50,000 – yearly charge rate 0.35% = £175 a year charge
- Current plan – Fund £50,000 – yearly charge rate 0.45% = £225 a year charge
- Total annual charges – £800 on your £200,000 retirement savings.
If you combined these all into your current plan, you would only have 1 charge – 0.45% on a combined pot of £200,000, but the yearly charge would be £900. This is why it’s important to check the charges on your pension pots before making any decisions.
Check the annual management charges you're paying each pension provider and whether you'll be paying more or less by combining them into one pot. The charges for managing your pension in one pot may be more than the cost of having multiple pots.
Top tip:
Charges are typically shown as a % of your pension pot, for example a 0.5% charge on a pot of £10,000 means you pay £50 every year
You should also check whether the pension providers you’re currently with charge exit fees for transferring out or leaving a scheme, and how much those charges are.
Investment choices
Before making a decision on combining pensions, you may wish to consider the investment choices you could have with your new pension. Have a look at fund factsheets and key investor documents to make sure you’re happy with the options available. You can usually find these within your pension account.
No guarantees
If you choose to combine your pension pots, remember the value of your pension pot can fall as well as rise and isn't guaranteed. The final value of your pension pot, when you come to take benefits, could be less than has been paid in.
Any new investment funds you move your pension pots into will have their own set of risks, which will be detailed in the fund information available to you. There’s no guarantee that by combining your pensions, overall investment performance will improve.
Does your scheme have a protected pension age?
In most circumstances, you can access your pension benefits from the minimum pension age, which is currently 55, unless you have a lower protected pension age (PPA).
However, the government is increasing the normal minimum pension age to 57 from 6 April 2028. Your ability to access your pension benefits before the age of 57 may be protected in your current scheme if it has a PPA, and could be lost if you transfer to another pension scheme. Typically, a PPA rule might already be included in a pension that you joined before 6 April 2006.
If being able to access your pension from age 55 rather than 57 is important to you, please consider getting financial advice before combining your pension pots, to make sure it's right for your circumstances.
Small pot options
A pension pot is classed as a small pot when it’s no more than £10,000. Small pension pots can be useful for tax planning because they allow you to take benefits without being affected by the lump sum allowance or the money purchase annual allowance for pension savings.
The lump sum allowance is £268,275. This is the total amount you can take tax-free in your lifetime as pension commencement lump sums (PCLS) and/or the tax-free element of any uncrystallised funds pension lump sums.
Provided you’ve reached your normal minimum pension age, you can take up to three small pots of up to £10,000. These aren’t tested against the lump sum allowance and 25% will be paid tax-free, while the remainder will be taxed at your marginal rate of tax.
If you have benefits that are close to the lump sum allowance, it may be worth considering using small pots to benefit from the tax-free element. If you don’t use up your small pots and end up with pension savings that exceed the lump sum allowance when you take your benefits in the 2024/25 tax year, you could pay tax at your marginal rate on all of the excess funds.