If you find yourself juggling multiple pension pots, you might consider pension consolidation. Combining your pension pots can make your life and retirement planning a lot simpler, but it is not always the right decision.
But what is consolidation? Why do people decide to consolidate, and how can you do it?
If you just want to find out more about retirement savings, head to our guide to pensions and how they work.
What is pension consolidation?
Pension consolidation is the act of combining separate pots together into one larger pot. It can help you to keep track of and organise your retirement finances, ensuring you don’t lose valuable long-term savings.
Remember that partial consolidation is an option. If you have many different pots you may want to combine them all, or keep some separate in order to retain in-built benefits.
Why do people consolidate pensions?
There are many reasons why someone might choose to consolidate their pensions:
- Moving jobs: When you move to a new job and start contributing to a new workplace pension, you might be interested in moving your pot from your previous workplace scheme across too.
- Moving abroad: If you are moving overseas, transferring your pots across to a scheme in your new country of residence may be of interest.
- Looking for a better deal: You may have heard of an attractive deal offered by a new provider.
- Looking for more control: You might be searching for a pension that gives you more control over how your retirement savings are invested, such as a Self Invested Personal Pension (SIPP).
- Organising finances: Consolidators may just be catching up on financial admin. Consolidation may happen as part of retirement or estate planning, or be influenced by a major life event like a marriage, a divorce or an inheritance.
How to consolidate your pensions
- Gather information: Assemble all the information you can about your current pensions. This means getting a hold of login details, your National Insurance number, reference numbers, statements, and anything else you can get your hands on. The more information you have to hand, the smoother the process will be. If you cannot find the information you need, contact your providers or even previous workplaces.
- Check your current scheme(s): Before going ahead with consolidation, you should find out as much as possible about your current setup. Find out about your pot size, its performance, exit fees, and guaranteed benefits you may lose by transferring. If you are not sure what is going on with your pension pot(s), check out our guide to checking your pension’s performance.
- Find your new provider: Assess your options and find the right place to consolidate. This may be a scheme you are already a member of, or a new provider. For example, you might choose to consolidate your various pots into your current workplace’s scheme, or move some of your pots into a Self Invested Personal Pension (SIPP) in order to gain more control. For help with this, read our guide to finding the right personal pension plan.
- Consider financial advice: If you are unsure about your consolidation plans, or have particularly complex retirement savings or needs, make sure to seek out professional advice. If you have a defined benefit plan or other guaranteed benefits, financial advice may be mandatory before you can proceed with a transfer.
- Initiate your transfer(s): Contact your receiving pension provider to begin your consolidation. You will need to supply them with information about the schemes from which you intend to transfer. If you are transferring your current workplace pension, you should also inform your employer if you need to pause contributions. Otherwise, you may consider a partial transfer out of your current workplace scheme.
If you are looking for more information, read our guide to pension transfer considerations.
Pros and cons of pension consolidation
| Pros | Cons |
|---|---|
| Easy management: Consolidation means keeping track of fewer pension pots, making them easier to maintain and less likely to be forgotten. | Loss of benefits: Leaving some schemes may mean losing valuable benefits, such as guaranteed annuity rates (GARs), protected tax-free cash sums, or a protected early retirement age. |
| Lower fees: Merging your pots can result in reduced fees. | Exit fees: Some providers may charge fees for transferring out. Check this before deciding to move your pension. |
| Take your pick: Consolidating can mean evaluating providers and picking the right one for you and your savings. | Investment risk: You might move your retirement savings into a fund that performs poorly. |
| Modern options: Consolidating can give you access to more modern conveniences, such as flexible withdrawal, that might not be available with your older schemes. | Short term stress: Combining many pension pots can be an initial admin headache, even if it makes life simpler in the longer term. |
Consolidating into a SIPP
One option when consolidating your pensions is to consolidate into a SIPP. A SIPP is a type of pension that allows savers to exert more control over their retirement savings.
This is because SIPPs offer a wide range of ways for savers to invest their money, including stocks, bonds, mutual funds, gilts and more. SIPPs can also offer pension savers more flexible ways to withdraw their money at/during retirement.
To find out more, read our explainer on different types of pensions.
Freetrade currently offers SIPPs to all members, including as part of the Basic plan for £0 per month.
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