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How to consolidate your pensions: combining multiple pension pots

Updated 26 July 2022

4min read

Nick Green
Financial Journalist

At any point in your working life, you may wish to find out exactly how much you have in pension savings and start managing them more effectively. One way to do this can be to consolidate your pensions.

What is pension consolidation?

Pension consolidation means combining all (or most) of your pension pots into one. Over your career you may work for many different employers, and so may build up quite a collection of different pension pots and/or pension schemes. You might also have personal pensions, especially if you’d spent time self-employed. At some point (not necessarily near retirement) you’ll have to decide whether to consolidate them or leave them separate.

Working out the best thing to do with depend on a number of factors, including what type of pensions they are, how much they are worth, how well they are being managed, and whether they currently have any special guarantees attached. Here are some of the things to think about and discuss with your adviser.

Should I consolidate my pensions?

Reasons to combine your pensions may include:

  • Saving money
  • Achieving better growth
  • Convenience
  • Keeping track of your pension savings

Can I save money by combining pensions?

Every pension pot you have will be managed separately, meaning each one has its own annual management fees. Some of these fees may be higher than others - for instance, some may charge 1 per cent or even more, but others may charge only 0.5 per cent. Combining your pots into the one with the smallest management fees can reduce this kind of waste, but take advice to make sure it's the right decision.

Your adviser may also help you find a fund with lower fees. A management fee of just 1 per cent can reduce the total size of your pot by more than 20 per cent over the course of a working life. So one little change made early enough could save you tens of thousands of pounds in the long run.

Can I achieve better growth by merging pensions?

Fund performance can be an important factor in deciding whether to combine pensions. If you have several pots, it’s likely that one will have outperformed the others (although remember the maxim that past performance is not a guide to future performance). Look for consistency of performance over time. Alternatively, your financial adviser may recommend a whole new fund.

Is it more convenient to consolidate pensions?

Managing one pension pot is inevitably much easier than handling several. Managing a pot involves more than just checking the balance once a year. You also want to make sure you are invested in the right fund for your risk profile, and this will change as you get nearer to retirement. Most of all, it will be far easier to arrange to draw your pension if you only have one pot to worry about.

Combining pensions to keep track of them

When you have multiple pension pots from various providers, you run a much higher risk of losing track of one or more of them altogether. House moves are notorious when it comes to paperwork getting lost – and if you lose the paperwork, you may not be able to inform pension providers that you’ve moved house. In this way pensions can get lost or forgotten about. Find out how to trace lost pensions.

Can I combine my defined benefit pensions?

If you have a defined benefit (or final salary) pension, you may be offered the option to transfer it into a defined contribution pension (the most common type). You should think very carefully before deciding to do this. Such transfers involve trading a guaranteed lifelong income for a finite sum of money in the form of a pension pot. It is usually a legal requirement to seek independent advice before transferring a final salary pension, as this is a big decision and cannot be reversed.

Are there any reasons not to combine my pensions?

Consolidating your pensions before retirement is usually a wise move. However, there are some circumstances in which it isn’t the best option. Make sure you ask an independent financial adviser about what you should do.

Some reasons not to merge your pensions are outlined here.

Are one or more of my pensions final salary?

As explained above, a final salary (or 'defined benefit') pension provides a guaranteed income for life, which is an extremely valuable benefit in an uncertain world. This income won't be affected by stock market falls, provided that the scheme remains viable, and in the case of scheme failure should be covered by the Pension Protection Fund. However, if the transfer value is quite small, or you are worried about the scheme's long-term prospects, then ask an IFA whether a transfer might be best.

Do any of my pensions have guaranteed annuity rates?

Some pension schemes offer a guaranteed annuity rate (GAR), which may enable you to buy an annuity with a much higher annual income that you would otherwise be offered. It may not be clear from your pension documentation whether you have one or not, but your adviser should check for you. Having a GAR is usually a good reason not to transfer out, as by doing so you would lose it.

Are there any penalties for transferring?

Check to see whether your pension’s transfer value is the same as its current value. If it is lower, then this may be because there are penalties for transferring. If there are, your adviser will need to check the nature of the penalties and whether they can be removed. 

How do I decide about combining my pensions?

Your adviser will go through all your pension paperwork with you and liaise with your providers, to help you build up a clear picture of your current pension arrangements. The adviser can then give you clear and unbiased recommendation, based on what you want from your retirement. There is no universal right answer when it comes to transferring pensions, which is why tailored advice is so important.

Remember, you can also top up your pension before retirement by making additional contributions – for example, transferring savings into your pension pot.

Am I saving enough into my pension?

If you want to know whether your pension pot will be enough for your retirement, there is a simple way to find out. Check out our article on how much to save into a pension or give our Pension Calculator a go to see how much retirement income you might recieve.

Here you can find out more about planning for your retirement. Did you find this article useful? Then you might also find our article on alternatives to pensions informative, too!

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About the author
Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO.