Combining your pensions
Everything in one place
It’s estimated that the average person will work for six different employers during their lifetime which means they can end up with six different pension arrangements*.
Keeping track of so many different plans can be tricky. So, combining your pension plans might be a good idea for you.
Need help? There’s lots to consider before you decide to combine your pensions as any decision could affect your income in retirement. Seeking financial advice(Opens new window) is highly recommended.
Pension combining can offer potential advantages:
- Easier to keep track of – rather than having to stay on top of lots of different pension plans, consolidation means you just have one account to review. So it’s easier to see how you’re progressing – both before and after retirement.
- More retirement options – it can give you greater access to the range of retirement options introduced for over-55s in 2015. Giving you more flexibility to take pension benefits as cash and use arrangements such as flexi-access income drawdown rather than just buying an annuity which was previously the traditional option at retirement.
- Improved investment choice – you can move your pensions to the provider with the investment choice that best meets your needs – and move out of any old pension arrangements that still have high charges.
- Better annuity terms – if you want to use your pension savings to buy a guaranteed retirement income using an annuity, larger pension pots can often attract a more attractive rate of income.
- Multiple pensions could mean paying multiple fees – bringing them together could mean paying less in charges (as you're only paying one charge on a higher value pot) so more of your money stays in your pot.
But there are also some important issues to consider:
Will I lose any annuity guarantees or other valuable benefits? Some companies offer ‘Guaranteed Annuity Rates’ and bonuses, these can provide a much higher income than is on offer from annuities today. Any ‘Guaranteed Annuity Rate’ could be lost if you move a pension elsewhere. Check with your pension provider.
If you’re seeking to move out of a pension with a Guaranteed Annuity Rate and that’s worth more than £30,000, regulated advice is a legal requirement.
Will I lose any protected tax-free cash? Most people assume that they can only take 25% of their fund as a tax-free lump sum, and this is true for the vast majority of pensions.
Some older pensions taken out before 2006, allowed you to build up more than 25% of the fund as a tax-free lump sum and when the pension tax rules changed in April 2006, these higher tax-free lump sums were protected. In most cases, you would lose any higher entitlement if you transferred to another pension. Check with your provider to see if this affects you.
Will I lose my protected low pension age? People who had a right to take their pension early (from age 50) were protected when the pension tax rules changed in April 2006.
If you think that you may have the right to take your pension before age 55, or before age 50 in the case of specified professions, you should check with your existing pension scheme or pension provider before transferring to a new pension.
What final salary pension am I sacrificing? A defined benefit – or final salary – pension provides a retirement income based on your salary and years of service. As long as the pension scheme remains solvent, this should be guaranteed. It’s important to take regulated advice to see if transferring out of such a scheme is the right option for you. If you want to move a final-salary pension with a transfer value of more than £30,000, regulated advice is a legal requirement.
Will I incur any exit penalties? Some plans will charge you if you move to another provider so check carefully first.
Take the time to make sure you’re comfortable with any decision to transfer out of a pension scheme. You may lose certain features, protections, guarantees or other benefits when you transfer. If you’re not sure, please seek financial advice - there may be a charge for this.
A transfer for consolidation purposes is from one capital at risk pension product to another – so the value of your investments after any consolidation can still fall as well as rise and the final value of your retirement savings may be less than you’ve paid in. Any new funds you move your money into will have their own set of risks that will be detailed in the fund information that will be available to you.
Where the transfer is from a Defined Benefit/Final Salary pension scheme, you will be moving from a secure benefit arrangement to a capital at risk pension product, where the value of your pension pot can then fall as well as rise. This is another reason why it is important you see professional regulated advice to establish if this is likely to be in your best interests, and you understand all the pros and cons of such a transfer.