The Best Ways to Consolidate your Pension Plans

Written by Sam Hodgson
Last updated: 25th July 2024

If you’ve been in the workforce for a while, the chances are that you’ve already switched jobs a few times. This means you’ve likely found yourself with a handful of pension plans to keep track of.

These different pension plans will usually have different fees as well as different rules, features, and benefits – not to mention different paperwork and online account logins. Managing all of this information can make retirement planning feel like a tangled mess.

Fortunately, pension consolidation can help. Consolidating your pension could not only make life simpler; it could also benefit you financially. In this article, we’ll explain how pension consolidation works, how it could benefit you, and which services you can use to help with the process.

What is pension consolidation?

Pension consolidation means you combine multiple pension plans into a single account or pot. These plans might include workplace pensions from previous employers and, in some cases, personal pensions, which you’re especially likely to have if you’ve ever been self-employed. Consolidating your pensions allows you to bring these different funds together in one centralised location.

Is consolidating pensions a good idea?

Whether you should consolidate your pension plans depends on which types of plans you have, the features and benefits they offer, your intended retirement date, and many other factors. In certain cases, consolidating your pensions won’t be worth it.

Notably, if you have a final salary or defined benefit pension scheme, this will give you a guaranteed income for life, so you’ll usually be better off leaving this untouched. In general, it’s best not to rush the decision about whether pension consolidation is right for you.

Take your time to research the various options available, and consult a pensions adviser if possible to ensure that you’re making an informed decision.

Services to help you consolidate your UK pension plan

Various services are available to help you consolidate your UK pension plans. These include tools for locating and tracking your pensions as well as schemes to invest in. Here are some services you might consider using.

Pension Tracing Service

Before you can consolidate your UK pension plans, you’ll need to know which plans you’re already enrolled in. If you’ve had a lot of jobs, it can be easy to lose track of this. If you’re unsure about which pension plans you already hold, you can use the government’s Pension Tracing Service. This provides a free tool for locating the pension scheme providers of your current or former employers. Unfortunately, the service cannot give you specific information about your own pensions, but it can help you to get in touch with the relevant provider, who can then tell you more about any pension plans you may hold with them.

UK Pensions Dashboards Programme

The UK Pensions Dashboards Programme is an initiative created to give people a comprehensive overview of their pension savings in one place. It’s designed to be an online platform where users can see information about all of their pension plans, including workplace pensions, personal pensions, and the State Pension. Unfortunately, the programme is not yet fully operational. The latest reports suggest that it will be available by 2026 (which is the current deadline for the implementation of the pension dashboard across the UK).

PensionBee

Unlike the services we’ve mentioned so far, PensionBee is an actual pension provider. More specifically, it’s a UK-based fintech that can help you move your old pensions into one easy-to-track online plan. There are a number of advantages to using PensionBee. The company provides transparent fees (with annual fees of 0.50%-0.95%, depending on the specific plan you choose), and they offer a range of investment options, depending on your risk preferences and retirement goals. If you decide to go ahead and use PensionBee, they’ll also let you know before you transfer your money whether any of your old pension providers charge an exit fee of more than £10, and will seek your permission before proceeding. This means you’re less likely to get nasty surprises in the form of large fees when you’re consolidating your pensions.

Moving your old pensions to your current employer

Many employers use a government-backed pension scheme called Nest for auto-enrolment. If your employer uses this scheme, they might be able to transfer your old pension plans to your new one (although your plans must be eligible for transfer). To initiate the transfer, you just have to ask Nest to send you a form in the post, which you can forward to each of your old pension providers to be completed and returned to Nest. Nest can then transfer of your old pension plans to your new one.

Self-invested personal pensions (SIPPs)

One type of scheme you can use for consolidating your pension is called a self-invested personal pension or SIPP. This is a type of pension scheme that allows you to choose and manage your own investments. SIPPs give you a wider range of investment options compared with traditional pension plans. They can include stocks, bonds, mutual funds, exchange-traded funds (ETFs), and even commercial property. Like many other types of pension plans, SIPPs usually come with tax advantages. This means your retirement savings can potentially grow faster over time. As such, SIPPs can be an attractive option if you’re looking to get more control over your investment decisions whilst still maximising your retirement funds.

How to consolidate your pension plan in 6 steps

When you consolidate your pensions, you’ll need to follow these six steps to transfer them to your new plan:

1. Research schemes: Research potentially suitable schemes for consolidating your pensions; these might include your existing pension providers or new providers. Find out about fees, investment options, customer service, flexibility, and other features. You may also wish to consult a financial adviser during this step.
2. Contact the provider: Once you’ve chosen a pension provider, contact them for instructions on how to transfer your existing pensions. There will probably be one or more transfer forms to fill in during this step.
3. Double-check transfer details: Check pension plan numbers, account names, and other information to avoid problems during the transfer process.
4. Wait for the transfer to go through: This can take some time, depending on the providers involved and their administrative requirements.
5. Check your consolidated pension plan: Do this once the transfer is complete to make sure that all your funds are present and correct. Also, take the opportunity to review investment options, fees, and other features of your new plan.
6. Monitor your new pension plan: Keep an eye on how your new plan is performing, and adjust your investment strategy as needed. Try to stay abreast of any changes in pension regulations, tax laws, or investment options that may affect your retirement savings strategy.

What to consider before transferring your pensions

Before you go ahead with the consolidation process we’ve just described, you should take some time to thoroughly review your existing pension plans. In particular, check for any pensions you may have forgotten about or lost track of over the years (e.g. by using the Pension Tracing Service we’ve already mentioned). Once you’ve accounted for all of your pensions, check the following:

• Fees and charges: Establish the fees and charges you’re paying with your old providers, and compare them with the ones other providers are offering to see which options will give you the best deal.
• Exit fees or other transfer costs: When transferring your pensions, you’ll often pay an extra fee to your old providers for moving your funds to a new provider, so find out whether this will apply. There may also be other one-off charges for closing your existing pension accounts or administrative fees that apply to transfers.
• Benefits or guarantees: Find out which benefits you might lose (or gain) if you transfer your pensions. One notable example we’ve already mentioned would be for final salary or defined benefit schemes, which typically provide lifelong retirement benefits and are highly favourable due to their security and predictability.
• Tax implications: The tax implications of transferring your pensions might include potential tax penalties or changes in tax treatment. Make sure you factor these into your decision regarding pension consolidation.
• Your preferred investment approach: For example, you should decide whether you prefer to pursue a high-risk investment approach or a low-risk one. You may have a preference for specific types of investments, so consider the options available with each provider, since they won’t all offer the same ones.
• Customer service and support: You might get better (or worse) service with a new provider, so this is another factor to consider before you consolidate your pension plans.
• Other features or benefits: Consider other features or benefits offered by your existing pensions that may not be available with the new provider – or vice versa. Important considerations might include restrictions or limitations on access to your funds or the provider’s financial stability and reputation.

Why should you consolidate your UK pension plans?

There are several advantages to consolidating your UK pension plans:

Simplicity and convenience

Keeping tabs on pension pots from different employers or providers can get confusing. It’s also easy to lose track of different sets of paperwork and information for online accounts (e.g. during house moves). Pension consolidation offers a simpler way to get a clear overview of your combined retirement savings. This makes it easier to track your funds; it can also make accessing your funds more straightforward, since you only have to make one withdrawal. And easier monitoring of your pension means you can more readily see how your investments are performing. You can then change your retirement strategy as appropriate – which brings us to our next point.

Improved investment performance

If you have several pension pots, you might have seen one or two of them outperforming the others. As such, you may be able to grow your retirement savings by moving your funds into one of your better-performing plans. However, bear in mind that positive performance in the past doesn’t guarantee future success. If you have a pension plan that has consistently performed well over a long period of time, this may be a good place to consolidate your funds for potentially better returns. Alternatively, you may be able to shop around for new pension plans with better investment options or lower fees. However, it’s often best to consult a financial adviser about which investments offer the best growth potential. They should be able to point you towards the most suitable options for your circumstances and retirement goals.

Cost savings

Pension plans have management fees, which represent a small percentage of the total amount in your pension account. You may be able to save money by combining your pension pots into the fund with the smallest management fees or by switching to a new fund with lower fees. However, fees are just one of the points you’ll need to consider when deciding whether to consolidate your pensions, so it’s worth talking to a financial adviser to be sure that you’re getting the best overall deal.

Greater flexibility

If you have older pension schemes, they probably won’t offer flexible ways to access your money when you retire. In particular, 2015 saw legislative changes introduced in the UK to give people more flexibility and control over their pension savings. [CITATION] Schemes from before that time may be less flexible compared with newer pensions. This means that consolidating your pensions into newer schemes could offer you greater flexibility in terms of how you access your retirement savings – another potential benefit to consider when you’re weighing up the pros and cons of consolidating your pension plans.

FAQs about consolidating your UK pension plan

How long does it take to consolidate a pension plan?

According to research from Origo, it takes around 14 days on average to transfer a pension. However, the process may be slower or faster, depending on your specific provider and pension plan.

Are there any tax implications of pension consolidation in the UK?

Yes, there can be tax implications associated with pension consolidation in the UK. For example, certain types of transfers may offer tax relief. When you consolidate your pension, it could also change when and how much you withdraw from your pension accounts, potentially affecting the tax rates you pay on withdrawals. As such, it’s best to consult a financial adviser before you proceed with a pension transfer, as they’ll be able to tell you exactly what it will mean for your taxes.

Do I need to consult a financial adviser to consolidate my UK pension?

You won’t usually be obligated to consult a financial adviser before you consolidate your UK pension. However, there are certain instances where you would need to get advice, such as if you’re transferring specific pension schemes like final salary or defined benefit schemes. In general, even if you’re not obligated to use a financial adviser, it’s a good idea to have someone who can offer expertise, personalised advice, and help with navigating the complexities of pension consolidation.