How to Combine Your Pensions

Pension consolidation can make retirement planning simpler and, in some cases, reduce costs or improve flexibility. However, it is not always the right option, particularly where older pensions include valuable guarantees or special features.

Below, we explain what pension consolidation means, how it works in practice, and the key benefits and risks to consider.

To consolidate pensions means transferring the value of two or more existing pension pots into a single pension pot. This can be arranged by moving old workplace pensions or personal pensions into one chosen plan.

The process does not increase or decrease the overall value of your retirement savings at the point of transfer. Instead, it brings your pensions together so they can be managed and reviewed in one place.

This is often referred to as pension consolidation or choosing to combine pensions, particularly when dealing with several smaller pots built up over time.

There are many reasons why people decide to combine pensions, often linked to changes in their working life or a desire for greater clarity as retirement approaches.

Typical reasons may include:

• Having fewer pensions to track and manage

• Receiving fewer statements and communications

• Gaining a clearer view of total retirement savings

• Simplifying financial planning and reviews

• Reviewing whether older pensions remain suitable
  
  

For some, the decision to consolidate pensions can arise after several job changes, where multiple workplace pensions have been left behind.

The consolidation process usually involves transferring the value of existing pensions into a new or existing pension plan.

What happens during consolidation?

When you choose to consolidate pensions, each existing provider calculates the current value of your pension. That value is then transferred directly to the receiving provider.

The money remains within the pension system throughout the process and does not pass through your bank account. Once the transfer is complete, the funds are invested according to the investment options available within the new pension arrangement.

Most of the administration is handled by the pension providers, although you may need to complete forms or confirm details along the way.

Not all pensions are treated the same when it comes to consolidation, and some require far more careful consideration than others.

Pensions that are commonly consolidated

Defined Contribution pensions are the most frequently consolidated. These include:

• Workplace pensions from previous employers

• Personal pensions

• Stakeholder pensions

• Self-invested personal pensions (SIPPs)
  
  

Pensions that may not be beneficial to consolidate

Some pensions include features that could be lost if you consolidate pensions, such as:

• Defined Benefit (final salary) pensions

• Guaranteed annuity rates

• Protected tax-free cash

• Loyalty bonuses or terminal bonuses
  
  

In many cases, transferring these pensions requires careful analysis and, in some situations, regulated financial advice.

The main benefits of combining pensions are usually felt before retirement, when managing and reviewing multiple pensions can become time-consuming or confusing.

Bringing pensions together into one place can offer:

• Simpler administration, with fewer providers, statements and logins to manage

• Clearer oversight of your total pension savings, making reviews easier

• Potential cost efficiencies, particularly where older pensions have higher charges

• More consistent investment management, with all funds aligned to the same strategy

• Reduced risk of pensions being forgotten, especially smaller pots from earlier jobs
  
  

These benefits are largely about clarity, organisation and efficiency, rather than how income will eventually be taken. They are not guaranteed, but they are often the reasons people explore how toconsolidate pensions in the first place.

While consolidation can be helpful, it also carries risks that should not be overlooked.

Possible downsides include:

• Losing valuable guarantees or benefits attached to older pensions

• Exit charges or penalties that reduce the value transferred

• Higher ongoing charges in the new pension

• Less diversification if all savings are invested in one place

• Irreversible decisions once consolidation is complete
  
  

For these reasons, consolidation should be approached as a considered decision rather than an automatic step.

Before consolidating, it’s important to compare the charges associated with your existing pensions and any new arrangement. This may include annual management charges, fund and platform fees, transaction or administration costs, and any exit fees that apply to your current pensions.

Tax considerations

In most cases, pension consolidation itself does not incur a tax charge, provided the pension transfer follows pension rules. Your tax-free cash entitlement is usually preserved, although certain protected features may be lost.

Checking both current and future costs helps ensure consolidation delivers genuine value.

The consolidation process can also influence how you access and manage your income in retirement. Having pensions in one place may make it easier to:

• Plan withdrawals in a coordinated way rather than across multiple schemes

• Use drawdown options more effectively and consistently

• Adjust income levels over time as spending needs change

• Review sustainability, helping assess how long your pension may last

• Adapt investment strategy as you move through different stages of retirement
  
  

Consolidation does not automatically improve retirement outcomes. The impact depends on the features, flexibility and costs of the receiving pension compared with the arrangements you already have.

Pension consolidation may be worth considering if you have built up several small defined contribution pensions over time, particularly when they offer similar features and do not include valuable guarantees. Bringing pensions together can make them easier to manage and review, helping you gain a clearer picture of your overall retirement savings.

Consolidation may also be appropriate where charges could potentially be reduced by moving away from older or more expensive arrangements. For people who are actively planning how they will access their pension in retirement, understanding how to combine pensions can form a practical and useful part of wider retirement planning.

Pension consolidation may not be suitable if you hold Defined Benefit pensions or arrangements that include valuable guarantees, bonuses or protected features. In these cases, transferring could result in the loss of benefits that are difficult or impossible to replace.

Consolidation may also be less appropriate where exit charges apply and outweigh any potential cost savings, or where you prefer to keep pensions separate to maintain diversification across providers or investment strategies. Carefully reviewing what you might give up is an essential step before deciding whether consolidation is right for you.

If you decide to consolidate pensions, the process typically involves five key steps.

• Gather details of all existing pensions

• Check features, guarantees and charges

• Decide which pensions, if any, are suitable to transfer

• Choose a receiving pension arrangement

• Submit transfer requests and monitor progress
  
  

Timescales vary, but most defined contribution consolidations take a few weeks to complete.

Professional advice may be helpful if:

• You are unsure which pensions can be consolidated

• You hold Defined Benefit pensions

• You are close to retirement

• Your pensions include complex or valuable features
  
  

Regulated advice is required for certain transfers, particularly Defined Benefit pensions above a specified value.

My Pension Expert helps people understand pension consolidation clearly and confidently, without unnecessary complexity or pressure to act. Our focus is on helping you decide whether consolidation is suitable for your circumstances.

We can help by:

• Reviewing your existing pensions in detail, including charges and benefits

• Identifying which pensions may be suitable to consolidate and which may be better left where they are

• Explaining the risks, costs and potential benefits in plain English

• Helping you compare pension options and understand the differences between providers

• Providing regulated financial advice where appropriate

• Supporting you through the consolidation process if you decide to proceed
  
  

We aim to help you make informed decisions that support your long-term retirement plans, based on a clear understanding of your options.