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Combining your pension pots

7 minute read

In this guide

  • Reasons to consider combining your pensions
  • Things you need to be aware of before you combine
  • Considerations for pension schemes provided by your employer
  • Where you can go for more help

If you’ve saved into different pensions throughout your working life, it can help to bring them together into one place. This is sometimes called pension consolidation.

Reasons to consider combining your pensions

  • Know where you stand
    It’s much easier to know how much you’ve saved when you can see it all in one place. This helps you work out if you’ve saved enough for retirement, or if you have a gap.

  • Convenience of one provider
    Rather than dealing with several providers, you’ll only have to deal with one.

  • Wider investment choice and more control
    If you transfer to a modern pension from an older pension, you may have a wider range of investment funds to choose from. And it can be easier to see how your investments are performing.

  • Lower charges
    You could pay less in charges. Over time, small differences in the percentage you’re charged can make a big difference to the returns you receive.

  • Flexibility with how and when you withdraw your pension savings
    When you retire you’ll need to decide how to turn your pension savings into an income. Most personal pensions (also known as defined contribution or money purchase pensions) let you choose when and how you want to withdraw your money. For example, an annuity pays you a guaranteed income for life. Or you might decide to transfer to an income drawdown plan, which offers flexibility but no guarantees. Some people choose a mix of both. You can access your savings after age 55 (increasing to age 57 in 2028). Or you can choose to do nothing until you’re age 75.

  • One income payment when you retire
    If, for example, you choose to buy an annuity with one pension pot rather than several, you’ll receive your income from a single source rather than several smaller incomes from different sources. So it feels a bit like receiving your salary each month.

  • Easier to leave money to your loved ones when you die
    Most personal pensions give you a choice of how to leave your pension savings to loved one(s) when you die. For example, you might leave them an income and/or a lump sum. Having your pensions in one place makes these decisions easier to manage.

Things you need to be aware of before you proceed

  • Watch out for penalties
    Your current pension provider will give you a ‘pension transfer value’. Check it’s around the same as the current value of your pension. If it’s much lower, then this could be because they’ve applied exit penalties, which is a charge for leaving the scheme.

  • Lost guarantees
    Check if your pension offers a ‘Guaranteed Annuity Rate’. This will pay you a guaranteed income for life and can offer better rates than today’s annuities, which could be very valuable. You’ll lose these guarantees if you move to another provider.

  • Small pension pots
    If you have a personal pension with less than £10,000 saved, you can usually withdraw your money as one lump sum. The first 25% of it is paid free of income tax. You’re allowed up to three small pot lump sums from different personal pensions and unlimited small pot lump sums from different defined contribution occupational (workplace) pensions. So if you want to do this you won’t want to combine your pension pots.

Extra considerations for pension schemes provided by your employer

  • Defined benefit schemes (also known as final salary schemes) contain valuable guarantees that should not be given up lightly. In fact, it’s now a legal requirement to take financial advice if you want to transfer out and the value of your defined benefit pension is more than £30,000.

  • It also may not be possible to transfer out of a defined benefit scheme if certain conditions aren’t met. And some public sector defined benefit schemes don’t allow it, so always check with your scheme first.

  • The above applies to mixed benefit (hybrid) schemes too. These are a combination of defined benefit and defined contribution schemes.

  • You may have a protected pension age and/or protected tax-free cash. So any increases to the minimum age for accessing pension savings, or changes to tax-free cash rules, won’t affect you. This could apply to an occupational defined contribution pension too.

Next steps

If you’re thinking about combining your pension pots, there are different places you can go for help. Find out more here - Expert advice and guidance (pensionbuddy.co.uk) or try MoneyHelper - (Free and impartial help with money, backed by the government | MoneyHelper)

We strongly recommend you take advice from a professional adviser authorised by the Financial Conduct Authority (FCA). However, f you want to go it alone, do some research and select your preferred pension company. Be sure to understand their charges and investment options. Then all you have to do is give them details of your pension plans and they’ll do the hard work for you.

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