What pension consolidation means and how it works
Many people build up several pensions over their working lives, especially if they have changed jobs. Pension consolidation is the process of bringing some or all of those pensions into one place. This guide explains what consolidation is, how it works and the reasons people consider it.
What does pension consolidation mean?
Pension consolidation means transferring one or more existing pension pots into a single pension. Instead of managing multiple schemes, everything sits in one place. For some people this makes their retirement savings easier to follow. For others, consolidation is not suitable, as some pensions have valuable guarantees or benefits that might be lost on transfer. These guarantees are usually listed in your pension documentation, annual statements or scheme guide, and your provider can confirm whether any protected features apply to your plan.
Why do people consolidate pensions?
People consolidate pensions for different reasons. Common motivations include wanting a clearer view of overall retirement savings, reducing the number of providers to keep track of, simplifying paperwork and statements, wanting all contributions to go into one place and finding it easier to understand charges when there is only one plan.
Consolidation is not the right choice for everyone. Some older pensions include valuable features such as guaranteed annuity rates or protected tax-free cash, and these could be lost if moved. This is why consolidation needs careful consideration of your own circumstances.
How does pension consolidation work?
Consolidation usually involves choosing a single pension and asking that provider to transfer your other pensions across. Before this happens, providers typically ask for details of the schemes you hold, confirmation of identity and permission to begin the transfer.
Each provider has its own process, but most transfers follow a similar pattern. Your chosen pension provider requests details from your existing schemes. The existing schemes confirm whether the pension can be transferred. Funds are moved across once both providers have completed their checks.
Some transfers are quick, while others take longer depending on the age of the pension and how the old provider operates. During this time, you may not be able to make changes until the transfer completes.
What should people consider before consolidating?
Although consolidation can make pensions easier to follow, there are important factors to consider. Charges differ between schemes. Some old pensions include benefits that cannot be replaced if transferred. Consolidation may mean a change in how your pension is invested. Some older pensions may charge an exit fee to transfer out.
These points can affect whether consolidation is suitable for an individual.
Does consolidating pensions save money?
Not always. Some people find that one scheme has lower charges or a more modern charging structure. Others find that an older pension offers benefits they would prefer to keep. The impact varies depending on the pensions involved.
Can you consolidate pensions at any age?
Most people can consolidate pensions at any point before accessing them, although some providers may have age rules or restrictions. Once a pension has been accessed, consolidation options may be more limited and may depend on the type of product held.
Frequently asked questions
What is pension consolidation?
Pension consolidation means transferring multiple pension pots into one pension so everything is held in a single place.
Why do people consolidate pensions?
Many people consolidate to make their pensions easier to manage, although this is not right for everyone.
Is it always a good idea to consolidate pensions?
Not necessarily. Some pensions include valuable guarantees, benefits or features that could be lost on transfer.
How long does a pension transfer take?
Transfer times vary between providers. Some are quick, while others take longer depending on the type and age of the pension.
Can you consolidate workplace and personal pensions together?
In many cases yes, although each provider has its own rules and some schemes may have restrictions.
Read more about pensions here:
Should I Pay to Top Up My State Pension?
Do you pay National Insurance on your pension?
What happens to my pension when I die?
Final note
Pension consolidation is simply a way of bringing pension pots together, but whether it is suitable depends entirely on your own arrangements and the features of your existing pensions. Understanding how consolidation works can help you feel more informed when reviewing your retirement savings.