Should you consolidate your pensions?

30th August 2022

The Association of British Insurers found an estimated 1.6 million pension pots are sitting unclaimed because they’ve been simply lost or forgotten about. One of the main reasons for this is because a person will have an average of 11 jobs in their lifetime, and could easily end up with many different pensions with a number of different providers, which can easily be forgotten about.

With one in three (33%)  pension savers worrying about these lost or forgotten funds, consolidating your pensions into one pot is something that many may want to consider.

Jonathan Watts-Lay, Director, WEALTH at work, looks at some of the key questions people should keep in mind if they are thinking about consolidating their pensions.

Q: When is it a good idea to consolidate your pensions?

A: “Consolidating your pensions into one pension pot can make it easier for you to manage your finances, rather than having to check the performance of multiple accounts, and could save you money on the fees charged.

It may make sense to consolidate your pension if you have a number of schemes and struggle to keep track of them all, or if they have different investment strategies which are  not joined up or aligned to the amount of risk you are prepared to take. It may also be something to consider it if you are approaching retirement and your other pension schemes do not provide the pension income flexibility you are looking for.

When Pension Dashboards are introduced this will help provide transparency and allow individuals to track their schemes more easily, but there will still be the same issue of not having a joined-up investment strategy.”

Q: What risks are there?

A: “It’s important to consider if there are any enhanced features or protections that you could lose by transferring a pension to an alternative arrangement. These could include a protected pension age, enhanced tax free cash or guaranteed annuity rates.  Depending on the specific benefits your existing pension offers, in some cases you would be required to seek regulated advice before proceeding with a transfer.

Also people should check if the scheme(s) offers any useful services such as; financial education, guidance or ongoing regulated financial advice, the option to take income drawdown, on-line access, the choice of investment options available and the number of investments available on the platform.

Individuals also need to realise that there is no guarantee the performance of the investments held in an alternative pension will be better than where they are already. It is important to look at the investment options available in your pension arrangements before making a transfer. Simple offerings with limited investment choice may not provide the investment options that best suit your needs. You should also be vigilant of scams.”

Q: How do I go about it and how much does it cost?  

A: To consolidate your pensions, you should get in touch with the pension provider you intend to transfer into. This could be your current workplace pension scheme, or another pension arrangement you have set up privately. They will ask for details including the policy numbers and provider names of all the pensions you are wanting to consolidate. This information will be available on your paperwork and statements. The pension scheme you have chosen to transfer into will then begin the process of arranging for all your pensions to be transferred into one plan.

If you are changing jobs, it is important to not transfer your existing pension until you have left, to ensure you receive all your employer contributions.

The costs of this can vary but could include charges for advice, setting up the new scheme, platform charges, dealing and transactional charges (including those to access funds via drawdown) and investment management charges. However, bringing all your pensions together may reduce some of these charges as some providers charge a lower percentage the more that is invested.

It’s important to note that if you have a defined benefit (DB) pension, a pension transfer to a defined contribution scheme is a complicated financial decision and is unlikely to be suitable for the majority of DB pension members.  If you are considering this option, you would be required to seek regulated financial advice at your own cost if the transfer value is greater than £30,000.

Q: Some pension consolidations are taking a long time to happen. What is causing the delay?

A: The time it takes to transfer a pension depends on the method different providers use. Some still send paperwork through the post, which can be a lot slower than secure electronic methods.

Also in November 2021, new measures were put into place to protect pension savers from scams which means that providers are now able to flag or block transfers which show signs of a potential scam. Some providers have been criticised for delaying legitimate transfers, but they claim that they are legally required to flag anything which breaches these criteria, and pause the transfer until further clarification is provided. To prevent the transfer being flagged, it is important to ensure that you provide as much information as possible to reassure the provider you are leaving that it is a legitimate transfer.