Should I combine my pensions? The pros and cons
A simple answer to a common pension question
If you have changed jobs a few times, there is a good chance you have more than one workplace pension. One may live in an old inbox, another sends a yearly statement, and the newest sits in an app you actually open.
Combining them can sound like an obvious tidy-up. Sometimes it is. One pension may be easier to follow and could cost less. But useful features can hide in the small print, so fewer pots does not always mean a better pension.
What does combining pensions mean?
Pension consolidation simply means transferring two or more pensions into one. People usually consider it for old defined contribution pensions — the kind where you build up a pot of money that is invested on your behalf.
The money moves directly between pension schemes. You can combine some pensions and leave others where they are, so it does not have to be all or nothing.
Why do people combine old pensions?
The most common reason is simplicity. Combining pensions can mean:
one balance to keep an eye on instead of several
fewer logins, statements and providers to update
a clearer view of how much you have saved overall
lower charges or more suitable options, if the new pension is genuinely better
more control and oversight of your investments
Convenience matters. If a pension is easy to see, you may be more likely to check it, contribute to it, or get more involved in how it is managed.
When could combining pensions make sense?
It may be worth exploring if you have several old defined contribution pots, they are becoming difficult to track, and you are confident they contain no special guarantees. A pension plan which is easier to access, has lower overall charges, offers better support, with suitable investment options or better retirement options could be a useful home for them. The key is whether it is genuinely better for you, not simply newer or tidier.
When might it be better to leave a pension alone?
Some pensions include benefits that can be difficult or impossible to replace. Check for:
guaranteed annuity rates that could provide a higher retirement income
a protected pension age or protected tax-free cash
with-profits bonuses or other scheme guarantees
it is active, and still receiving contributions from your current employer
exit charges, transfer penalties or restrictions
lower charges or more suitable investments in the pension you already have
Defined benefit pensions need extra care. These are sometimes called final salary or career average pensions. They usually promise an income for life rather than giving you an invested pot. Transferring one normally means giving up that promise. If safeguarded benefits are worth more than £30,000, you must get regulated financial advice before a transfer can go ahead. Penny Pension won't transfer pensions with special benefits so that they aren't missed out on.
Be careful with the pension from your current job too. Your employer will normally pay into its chosen workplace scheme. Moving or opting out could mean losing future employer contributions, so check the rules before making a change.
Five checks to make before you transfer
Know the pension type. Ask whether it is defined contribution or defined benefit.
Ask what you would give up. Check for any guarantees, protected benefits, bonuses and restrictions.
Compare the full cost. Look at annual charges, fund fees, transfer costs and exit penalties on both sides.
Check where the money will go. Understand the receiving pension, its investments and the retirement options it offers.
Check who you are dealing with. Check reviews of the new provider, and you can also check the FCA's register of authorised firms to confirm the company you're dealing with is regulated. Never transfer because of a cold call or pressure to act quickly.
How to find a pension you have lost track of
There are two answers to this question. One is the traditional way; do your own research.
Start with old payslips, pension statements and emails. You can also ask a former employer which pension provider it used while you worked there. Additionally, you can use the GOV.UK Pension Tracing Service to help find contact details for a workplace or personal pension scheme. It cannot tell you whether a pension exists or what it is worth, and you will usually need the name of the employer or provider.
The other way is to use the Penny Pension app to identify and combine your old pensions into one pension plan. Penny Pension is able to identify millions of pension policies to re-unite old pension policies with their rightful owners!
How does a pension transfer usually work?
The provider receiving the pension will often start the transfer for you. You give it the details of your old pension, then the two providers arrange the move between them.
Check that transfers are allowed, ask about any deadline or transfer value, and read every document carefully. Keep the paperwork and make sure the full amount arrives. Do not withdraw the money to your bank account as a shortcut, because that is different from a pension transfer and could create a tax problem.
So, should you combine your pensions?
If your old defined contribution pensions have no valuable benefits and the receiving pension is cheaper, clearer or easier to manage, combining them may be sensible. If anything is unclear, pause. There is no prize for moving quickly, and a completed transfer is usually difficult to reverse.
For each pension, do your checks to ensure you understand its type, value, annual charge, investments, access age, special benefits and any transfer fee. That turns a vague tidy-up into a decision you can properly compare.
Penny Pension is built to make old workplace pensions easier to find and understand. Once you know what you have, you can manage them together in a way that feels right for you.
This article is general information, not personal financial advice. If a pension includes guarantees, safeguarded benefits or anything you do not understand, consider speaking to a regulated financial adviser or using free guidance from MoneyHelper before transferring.
