Why should you combine your pensions?

With more than forty years of working life to fill, changing your employer - if not your entire career - several times over is now the norm.

In fact, research shows that you’re likely to change jobs 11 times1 before you retire, and all that change means you’re not just racking up entries on your CV, but pension pots too.

We often talk about ‘our pension’ as though it’s one single fund, but the reality is that your pension is more likely to be a number of separate pots sitting on the books of various pension schemes at previous employers. In fact, some people accumulate so many pots that they don’t remember them all when it comes time to retire and need help to track them down.

That’s why many see the attraction of consolidating their pots in one place while they’re still working, so they can easily keep tabs on the size of their retirement savings and how they are invested. This can be done by bringing pensions from previous employers into a self-invested personal pension (SIPP) that you set up.

Is it time to consolidate your pension pots? Here we answer some common questions about the process.

Does it matter what kind of pensions I have?

Pensions fall into two broad groups, Defined Contribution schemes and Defined Benefit schemes.

Defined Contribution schemes build up a pension pot to provide you with a retirement income based on contributions from you, and maybe your employer as well. Your pot is put into various types of investments, including shares, and your pot at retirement is based on how much has been paid in and how well the investments have performed, less any charges.

The value of investments and the income from them can go down as well as up, so you may not get back what you invest.

Consolidating two or more Defined Contribution schemes is relatively simple, and that’s what we address here. Find out more about consolidation.

Defined Benefit schemes pay a retirement income based on your salary and how long you have worked for your employer.

Defined Benefit schemes normally provide very valuable benefits and it is not usually in your interests to move these pensions, although it is possible. If you’re thinking about transferring out of a Defined Benefit scheme in order to access your pensions more flexibly you should consider your options very carefully and will often need to receive professional financial advice before you can do this.

It’s important to understand that pension transfers are a complex area and may not be suitable for everyone. Before going ahead with a pension transfer, we strongly recommend that you undertake a full comparison of the benefits, charges and features offered. To find out what else you should consider before transferring, please read our . If you are in any doubt whether or not a pension transfer is suitable for your circumstances we strongly suggest that you seek advice from an authorised financial adviser.

What if I can’t find a pension?

If you have no evidence of your membership of a pension scheme, or can’t remember if you were a member, the Pensions Advisory Service is a government agency that gives free help and guidance on pensions that can help you track down lost pension details. Find it online.

What about my current workplace pension?

If you’re still working and have a pension with your current employer it is generally not a good idea to transfer this until you stop working for them. If you do, you may miss out on valuable contributions and other benefits from your employer.

How do I compare the cost?

There will always be some kind of charge for investing and administering your pension money and this will impact the level of your pension fund over time.

You should be able to find out the annual charges you are paying by contacting your pension providers. Once you know, compare them with the charges for investing via your chosen SIPP provider. Bear in mind that different SIPP providers have different charging structures so make you sure you understand all the potential fees you could be charged.

Paying a slightly higher sum overall may be worth it if you value the other benefits of consolidating your pots.

Is there a cost of leaving an old scheme?

Some pension schemes charge a fee if you transfer your retirement savings. This should be easy to find out and will become apparent if the ‘transfer value’ you are given is lower than the pot value. If an exit fee applies, you need to decide if you’re willing to pay this for the benefits of consolidating.

It is also very important to understand if your old scheme comes with any benefits that you will be giving up by leaving. An old scheme might allow you to take your money earlier, for example, or will perhaps allow you to buy a higher income in the future via a ‘Guaranteed Annuity Rate’ (pensions started in the 1990s and before are more likely to include these).

If an old scheme includes such features, consider whether you will lose out by giving them up.

Taking a pension pot of under £10,000 means you can continue contributing to a pension as you had been doing before. This is not the case if you have accessed taxable pension money from larger pots. In these instances, the contributions you can make to a pension are then limited to £4,000 under a rule called the Money Purchase Annual Allowance. In some circumstances it can be advantageous to have access to pension pots that, on their own, amount to less than £10,000. That’s because pension rules allow you to access pots of under £10,000 without triggering a test of the Lifetime Allowance - this is the total amount you can build up over your lifetime that will enjoy full tax benefits. If you go over the allowance you will generally pay a tax charge on the excess when you take a lump sum or income from your pension pot, but this does not happen when small pots are taken.

What do I gain by consolidating?

The great benefit of consolidating pension pots is that they become far easier to look after because of management of charges and risk. Most pension providers allow you to view your account online so that you always know the value of your total retirement savings, meaning you have a better idea of the level of pension you’re heading for in retirement.

Knowing with certainty the size of your pot means you can react if you feel you are not investing enough.

Having your pots in once place means you can manage the overall level of risk you are taking, and ensure that you are not over-exposed to one market or type of asset.

Finally, it may be that your former workplace schemes do not give you the full range of options for accessing your pension money from age 55 (read more about those on our retirement pages). A SIPP can offer you these.

Is it dangerous to have all my eggs in one basket?

Defined Contribution pensions, whether that’s a SIPP or workplace scheme, are governed by rules that ensure your money is kept separate from the provider’s own resources. In other words, they aim to reduce the risk to you if the company gets into financial difficulty.

This doesn’t mean, of course, that you are protected from the ups and downs of the markets. Wherever your pension money is invested, it’s important to have a diversified range of investments that match your appetite for risk.

1Published 9 May 2016 : ‘Minister for Pensions, Baroness Ros Altmann said: People have had on average 11 jobs during their working life which can mean they have as many work place pensions to keep track of.’
https://www.gov.uk/government/news/new-pension-tracing-service-website-launched

Important information

Eligibility to invest into a SIPP and the value of tax savings depends on personal circumstances and all tax rules may change. Withdrawals from a pension product will not normally be possible until you reach age 55. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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