How Do I Consolidate My Pensions?

Considering employers open pensions for all new employees, it’s no surprise some individuals don’t know how many pensions they have. According to 2022 data from the Pensions Policy Institute, the value of lost pension pots is £26.6 billion.

You can trace unclaimed pensions in several ways:

• Trace former employers. They should provide the pension providers’ details.

• If you know the details of the pension schemes, contact the providers directly.

• The government’s Pension Tracing Service is also an option if you can’t find your former employer.

The transfer process is unique to each type of pension based on the following:

• Benefits – You can’t transfer certain benefits like death benefits or guaranteed annuity rates.

• Fees – Keep an eye out for early exit fees and charges for specific transfers like moving from a defined benefit scheme to a defined contribution pension scheme.

• Amount – How much you want to transfer will determine which rules apply to the transaction.

• Type of transfer – You can transfer any type of pension as long as your provider allows it.

• Stopped contributions – The savings still belong to you even if you stop contributing.

People looking to consolidate their pensions have plenty of options to choose from:

• Do it yourself (DIY): If you have all the details, open a Self Invested Personal Pension (SIPP) and combine the pensions. Investments like shares, funds, and investment trusts might grow your pot. You can use reputable investment platforms like Hargreaves Lansdown or AJ Bell.

• Pension tracing services: Private pension providers like PensionBee will trace, transfer, and consolidate all your pension pots. They might even offer recommendations and pension market advice.

• Pension Tracing Service: It’s a free, governmental service. The tool works even if your employer went out of business or you can’t trace them. All you need is details of your employer, the type of business they conducted, and when you belonged to the pension scheme.

Before approving the pension consolidation, choose a provider based on the following:

• Fees and charges: Opt for one that doesn’t charge exorbitant administrative fees and unreasonable exit fees.

• Pension annuity rate: They should offer sensible interest rates beating inflationary trends.

• Investment and pension options: Must have a wide range of investment and pension options on financial assets capable of earning your savings maximum returns.

• Retirement goals: Ideal providers should have a scheme aligned to your retirement plan, helping you achieve your retirement goals.

• Risk tolerance: A good provider will assess your situation and suggest a flexible retirement plan matching your risk tolerance, ensuring you don’t lose money when you need it the most.

· Can I save money by combining pensions?

Each of your pension pots incurs administrative charges, so combining your pots might reduce the fees and save you money.

· Can I achieve better growth by merging pensions?

Different providers offer varied interest rates and have different charges. Consolidating your pension under a provider offering the best rates and lower costs means you will earn more.

· Is it more convenient to consolidate pensions?

All your pensions will be under one roof, so it’s easier to manage and predict your earnings than having it strewn between different providers with different management requirements. Having many pension funds increases the risk of losing track of some of them.

· Do I have a final salary pension?

A final salary scheme provides a guaranteed lifetime income. When you pass away, your spouse or partner may be eligible for some benefits. Confirm with your provider if you have a final salary pension and if you can consolidate one under the scheme.

· Does my scheme offer generous guaranteed annuity rates?

If your current scheme offers generous perks like guaranteed annuity rates, ensure you are not giving them up before transferring your pension.

· Are there any exit fees?

Find out if your current provider charges exit fees for moving your pension to a different provider, as these can be hefty.

You should consider pension consolidation for several reasons, including:

Consolidating your pension may not always be the best option as you could lose some benefits, incur huge fees, and it may not make financial sense, as discussed below:

The retirement benefit you receive from a defined benefit pension scheme has its basis on your income and the duration of your contributions to the scheme. It includes final salary and career average revalued earnings schemes.

When combining a defined benefit pension system with other pensions, it’s essential to evaluate the compatibility of the benefits and provisions provided by each scheme, including retirement age and inflation protection mechanisms.

Unlike a defined benefit scheme offering guaranteed income for life, the pension provider will only pay a certain amount under defined contribution pension schemes based on the amount you paid, your choices at retirement, and how much the investment grew.

Before you combine any of these schemes, be it an executive pension plan, group personal pension, SIPP account, or Small Self-Administered Scheme, consider each pension plan’s investment opportunities, costs, and maximum allowable contributions.