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Should you consolidate your pensions?

If like many, you’ve had a few jobs over your career, you may have several pension pots dotted around. Some you may have even forgotten about.

As many as 1.6 million pension pots have been lost, often because people moved house and forgot to let their pension providers know. This means £19.4 billion worth of hard-earned pension savings have been left unclaimed1.

In this article, we look at why you might merge your pensions and things you need to consider.

What is pension consolidation?

Pension consolidation is when you combine 2 or more pensions into one pot. It’s also known as ‘transferring’ or ‘merging’ your pensions as you move your money out of one scheme and into another.

Why might you transfer your pensions?

There are several good reasons why you might consider merging some or all of your pensions into one pot:

1. It makes them easier to manage

If your pension savings are in one place, you’ll be able to see if you're on track to meet your goals.

It can also be motivating to see your money grow – it may even tempt you to add more in.

2. It creates less admin

Most of us dread wading through lots of financial paperwork, and pensions often come top of the list of things we put off.

Bringing your pensions together might create some extra admin in the short term, but it could be worth it to know all your savings are in one place.

Plus, you’ll get fewer statements each year.

3. You’d get a single pension payment

When you retire, rather than receiving several smaller payments each month, a combined pension means you get one larger payment – so it’s easier to budget.

4. It could reduce your pension charges

A single pension pot could mean you’ll pay less in charges.

It’s definitely worth checking the charges of your various pensions. Because having several smaller pension pots may be more expensive than consolidating them in one place.

5. It could make your money work harder

If you have several pots, chances are one is performing better than the others – although past performance is no guarantee it will do as well in the future.

It’s important to understand both the performance and the charges on each pot to see which is working harder for you.

6. It could give you more investment choices

Your pensions may be invested in funds that aren’t suitable for you as many schemes offer a limited range of investments.

By combining them, you could have more choice in where your pension is invested – you might want to opt for a sustainable fund, for example.

You can also make sure you’re happy with how much risk is being taken.

7. It could give you more flexibility when you retire

Newer pensions can be more flexible when accessing your money in retirement.

Changes to pension legislation in recent years have given people more freedom to control their pensions when they retire.

Check the details of your scheme to find out whether this applies to your pension.

Is combining your pensions right for you?

To explore your options, start by making a list of the pensions you’ve got. 

Pension providers will usually send you a statement each year. However, if you’ve moved several times, you may have lost track of a pension or two. If you need help to locate your old pensions, try the Pension Tracing Service.

Once you’ve listed all your pensions, contact each provider and ask them for details of your scheme – and keep all your paperwork together.

Before you transfer your pensions into a single pot, you need to be sure it’s the right thing to do. Some pensions may charge you for transferring out, while other types of schemes offer benefits you might want to keep.

Take a close look at each of your pensions and ask yourself the following:

Do I have a final salary pension?

It almost certainly makes sense to stay in a final salary scheme – also known as a defined benefit scheme. That’s because it offers a guaranteed income for life, which may rise with the cost of living. It may also offer a pension for your spouse or partner when you die.

If your pension is a defined contribution or money purchase scheme, this isn’t a final salary scheme so it may be worth transferring it.

Does my scheme offer safeguarded benefits, such as generous guaranteed annuity rates?

Safeguarded pension benefits include some form of guarantee or promise such as an annuity rate – the rate at which you convert your pension savings into a guaranteed annual income. 

Annuity rates have improved recently but may still be lower than the rate that may be guaranteed by your pension scheme. So, if you’ve been promised a good rate, it could be worth holding onto if you want the security of a higher guaranteed income for life.

Are there any exit fees?

These might kick in if you move your pension pot to another scheme. If they’re high, moving your money could be a false economy.

What are the pension scheme charges?

Most schemes charge an annual percentage of your pot to manage your pension. But some also charge a monetary fee, such as £100 each year, on top of the percentage charge.

Make sure you know what charges apply to your pensions, as high fees can eat away at smaller pots.

How to consolidate your pensions

If you’re sure that consolidating is right for you, you just need to tell your current provider (or a new provider) you want to consolidate your separate pensions. They’ll be able to start the consolidation process. 

How long it takes can depend on a number of factors, such as the number of pensions pots you’re combining. 

Remember, before consolidating, you need to be sure your pensions don’t have any benefits you could lose if you merge them together. Also make sure you consider all charges and any fees involved with combining your pensions. 

Take professional advice before you act

You only have one retirement so you don’t want to make a costly mistake with your pensions that you could one day regret. Before you start combining your pensions, it’s worth talking to someone who specialises in consolidation advice.

We can offer you specialist retirement advice tailored to your circumstances if you have pension pots of more than £100,000, either on your own, or jointly with your partner.

Our financial advisers will look in detail at all of your defined contribution pensions and recommend what to do with each of them. They’ll also give advice on the best way to achieve the income you need in retirement. This service is available to HSBC customers and fees apply.

If you’re looking for free guidance, you’ll find lots of helpful information on the MoneyHelper website. And if you’re 50 or over, you can also book a phone appointment to discuss your options.

Be aware of pension scams

One last thing to bear in mind is that pension savings are big targets for fraudsters. If someone contacts you unexpectedly offering to help you transfer your pot, it’s likely to be a scam.

Always check a firm’s credentials before speaking to them. If you’re concerned, contact the Financial Conduct Authority (FCA) to check they’re legitimate. To find out more about potential scams and how to avoid them, see the FCA website.