Pension Consolidation

Why people consider consolidating

Many people build up several pension pots over a working life as they change jobs. Bringing them together in one place can make them easier to keep track of, simpler to manage, and in some cases cheaper if you move from higher-charging schemes to a lower-cost one. It can also give you a clearer picture of whether you are on track for retirement.

The free Government-backed pension tracing service can help you find pots you have lost touch with, which is often a sensible first step before deciding whether to combine them.

What you could lose by transferring

Consolidation is not always beneficial. Some older pensions come with valuable features that would be lost if you transfer out, so it is important to check before you move anything.

• Guaranteed annuity rates, which can pay a far higher retirement income than today’s rates
• Defined benefit (final salary) benefits, which provide a guaranteed income and are rarely worth giving up
• A protected pension age or a higher protected tax-free lump sum
• Exit fees or penalties charged for leaving the existing scheme

Getting the decision right

Because a transfer is usually irreversible, weigh up the charges, investment choice and any guarantees on both sides before acting. If you are transferring a defined benefit pension worth more than £30,000, you are legally required to take regulated financial advice first.

Be especially alert to anyone who contacts you unexpectedly suggesting you transfer or combine your pensions — this is a common tactic in pension scams. Deal only with a firm you have checked on the FCA Register.