Can you combine pensions?
Over the years you may have collected a variety of pension schemes, especially if you have had several jobs. For those who dislike the clutter of a mixture of pensions, consolidating (meaning to combine) many types of pension schemes into one modern pension can be a relatively straightforward exercise.
In particular, a “defined contribution” scheme, such as a personal pension, can usually be moved to another, similar scheme easily, making tidying up these pensions simple. However, there can be significant pitfalls too. Notably, “defined benefit” schemes require regulated advice before transferring that usually recommends, they are best left untouched – although there can be exceptions. Defined benefit schemes are where the amount of pension income you are paid is based on how many years you’ve worked for your employer and the salary you have earned.
Is it better to combine pensions?
There are several reasons why people decide to combine all of their existing pensions or just a select few.
1. Making life easier
Having fewer pension schemes can simplify your financial affairs. It means less paperwork and administration, plus it’s easier to keep track of what you have and where it is invested.
2. Wider investment choice
Some pensions have limited investment options and, if you are an active investor that could benefit from a broad choice, a SIPP (Self Invested Personal Pension) may give access to a wider range and help boost investment returns. Find out more about how a SIPP works here.
3. Lower charges
Some older-style pension schemes may have uncompetitive charges by today’s standards; you may be able to save money by transferring to a lower cost scheme.
4. More options for taking benefits
If you want the greatest flexibility in terms of drawing your pension including income drawdown then you may need to move your pension pots to a personal pension or SIPP. Pension drawdown is where you keep your fund invested, after taking any tax-free cash, and take an income from it rather than converting it to a guaranteed level of income through an annuity.
It’s riskier because your money could run out, but there is the prospect of greater returns overall, with the potential to pass more on to the family on death.
When should you not combine pensions?
Pension consolidation also comes with some risks to your retirement savings, depending on the type of scheme you have been paying into. You should think twice about combining your pension if the following points apply to you.
1. Losing the security of defined benefits
Defined benefit pensions such as final salary schemes have valuable promises attached to them. Essentially, you would be giving up a pension income that will be payable for the rest of your life for one that might run out. You must always take regulated financial advice if you are considering transferring out of a defined benefit scheme.
2. Missing out on valuable benefits
Other pension schemes may have bonuses, benefits such as guaranteed annuity rates, or even life cover attached to them that would be lost if your transfer your pension to another scheme. This is particularly the case with older pensions.
3. Employer contributions
If you are currently contributing to a workplace pension your employer will be contributing too. Moving elsewhere may mean giving up this valuable boost to your pension savings.
4. Transfer penalties
Some pensions, particularly older ones, charge administration fees or exit charges if you transfer away. You should always check what these are before considering a transfer as they can be prohibitive.
How to combine pensions
To combine your pensions with a chosen provider you’ll need to instruct that provider to arrange the transfers.
If you wish to use the Charles Stanley Direct SIPP, you will need to open a SIPP with us if you haven't done so already. A SIPP transfer form is then available from the Transfer In page, which you will need to print, complete and return to us. If you are transferring in multiple pension plans, we require one transfer form for each plan.
If you have trouble tracking down any older pensions you can use the government’s pension tracing service here to get contact details for the provider to help you get in touch and find out more.
About the Charles Stanley Direct SIPP
The Charles Stanley Direct SIPP gives you freedom and control over the investment decisions made, and you can access an extensive range of investments for competitive ongoing charges including:
- Thousands of investment funds, investment trusts and exchange traded funds (ETFs)
- UK and overseas individual shares
- Bonds and gilts
If you are not sure where to invest there are simple ready-made portfolios available through our multi asset funds. Our experts decide on an appropriate mix to balance risk and reward, adapting to changing conditions and trends, though the onus is on you to select the fund(s) appropriate for your needs.
Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.
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