What is pension consolidation?
Throughout your life, you may have built up a number of pension pots as a way to save for retirement. Pension consolidation means bringing together these multiple pension pots or schemes into a single plan.
For many people, the main goal of consolidation is to make it easier to manage pensions. Other benefits include potential cost savings, improved investment options and greater control over your retirement planning – as we’ll see below.
Should I consolidate my pensions?
Pension consolidation can be a relatively straightforward process, but it’s a decision that shouldn’t be taken lightly. While there are many benefits associated with merging your pension pots, there are some things to consider before making a decision.
For example, you may lose certain benefits associated with your existing pensions. These benefits might include:
- Guaranteed annuity rates
- Protected tax-free cash amounts or
- Investment options that are specific to individual pension plans.
That’s why it’s important to carefully review the terms of any pension scheme you’re in before consolidating.
You may also be interested in consolidating your other investments. If so, read our guide: Should I consolidate my investment accounts?
Benefits of pension consolidation
Bringing together your pension pots into one place can offer several benefits, including:
Less administration
Merging pension pots into a single plan means you’ll only have one provider to deal with. This can make it easier to keep track of your contributions, investment performance and overall pension balance.
Potential cost savings
Most pension schemes come with their own set of fees and charges. By merging, you may be able to reduce costs by moving your pensions into a scheme with lower fees. Be sure to review the charges associated with each of your pension schemes as part of this process.
More investment options
If you’re part of an older pension scheme, you may find that it has limited investment options or outdated fund choices. Transferring to a new plan could provide you with a broader range of investment options, including funds with different risk profiles, asset classes and potential returns.
Better potential performance
If your older pensions are under-performing, switching to a consolidated plan could offer the potential for better returns. When researching plans, it can be useful to look at the past performance of the funds they offer before moving your money.
Please note that past performance is not a reliable indication of how funds will perform in the future. The value of unit prices, your investment and any income can go down as well as up. You may get back less than you invest.
Easier retirement planning
Combining your pension pots can help to simplify the process of planning for your retirement. You’ll have a clearer understanding of your total pension pot, making it easier to estimate your future retirement income. This means you can make any necessary adjustments to your contributions well in advance.
Estate planning benefits
Merging your pensions can also have estate planning advantages. It can make it easier to organise and distribute your pension assets when you pass away, potentially simplifying matters for your beneficiaries.
While pension consolidation can offer these benefits, it’s important to consider your individual circumstances before making a decision. Speaking to a Specialist Financial Adviser who specialises in pensions can help you to assess whether consolidation is the right option for you.
Please note that the Financial Conduct Authority does not regulate inheritance tax planning and trusts.
How do I consolidate my pensions?
While there may be some differences between providers, the process of combining your pension pots usually involves the following steps:
- Gathering information
- Reviewing your pensions
- Making a decision
- Transferring your pensions
- Monitoring your consolidated pension
If you’re struggling to track down your old pensions, one option is to reach out to your previous employers. They should be able to provide you with information about the pension scheme you were enrolled in while you were working for them, including the contact details of the provider.
If this isn’t possible, you can also use the Pension Tracing Service (PTS) available on the UK government website. This service will help you to locate both workplace and personal pensions, but you will need the name of an employer or pension provider before you can start the search.
When you’re reviewing your pensions, assess the terms and conditions, fees, investment options and performance of each of your schemes. You should also take into consideration charges, fund choices and flexibility, as well as any valuable benefits or guarantees attached to your existing pensions.
If you decide that merging your pension pots is the right option for you, the next step in the process is to select a plan that is most suitable for your needs. As part of this step, you'll need to decide whether to move all of your pots into an existing scheme or whether to start a new pension.
If you decide to start a new pension, it will need to be one that accepts transfers, such as the Wesleyan Personal Pension Plan.
At this stage, your new pension provider will supply you with the paperwork needed to initiate the transfer process. Once this has been completed, they’ll communicate with your existing pension providers on your behalf to transfer the funds to your consolidated pension plan.
Once you have your consolidated pension, it’s important to keep track of its performance to make sure it is progressing in line with your retirement goals. This way, you can make any necessary adjustments to your plan over time.
Get specialist pension advice
When making a decision about whether or not to merge your pension pots, it can be helpful to speak to a Specialist Financial Adviser from Wesleyan Financial Services.
With expert knowledge of pensions and retirement planning, they'll carry out a full analysis of your current pension arrangement and assess whether consolidation is the right option for you.
They'll also be able to break down any difficult jargon or figures to help you make a well-informed decision.
What if I’m part of a defined benefits scheme?
If you’re part of a defined benefits scheme, such as the NHS Pension Scheme or Teachers’ Pension Scheme (TPS), it’s highly unlikely that you will be able to transfer your benefits to a new pension. This is because transferring out of a defined benefits scheme is heavily restricted.
As such, you won’t be able to transfer your benefits to a personal pension or to a defined contribution workplace pension. And, while in some cases it is possible to transfer to another defined benefits scheme, most do not accept transfers from the NHS or Teachers’ Pension Schemes.
How much does it cost to merge pensions?
Depending on the terms and conditions of your existing pensions, you may encounter some costs throughout the process.
For example, you might incur exit fees if you choose to leave. The specific amount will vary between pension providers and schemes. Some providers may charge a fixed fee, while others may ask for a percentage of the pension value being transferred.
You’ll also need to consider any costs associated with your new scheme (such as investment charges and management fees) and how they may impact the overall value of your pension.