How to consolidate your pension

25 October 2021 | Posted by Claro Money
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If you have a number of active pensions, consolidating them could be a simple way of bringing them together so they’re easier to monitor.

But it’s not always a straightforward decision. Disadvantages, like hefty exit penalties, might outweigh the benefits, such as a greater choice of investments. And it can take some time to gather all the information you’ll need to decide if it’s best for you. Find out how to consolidate your pension and what to look out for before you make the decision.

Why consolidate your pension?

There’s nearly £20 billion in unclaimed pensions in the UK, so it’s really important that you keep an eye on your pension pots. When it comes to retirement, every little helps. So even if you have a few thousand in a pension pot from years ago, it’s worth knowing about it. Consolidating your pensions can help you keep a closer eye on your retirement savings, as you’ll only have one pot to manage.

It might make sense to do this if:

  • You’re moving to a new job
  • You’ve had multiple jobs and therefore many pensions, which are hard to keep track of
  • Your pension scheme is being closed or wound up
  • You want to transfer to a better or cheaper scheme
  • You’re moving abroad and want to transfer to a new scheme in that country (it’s best to seek advice in both countries to check the rules on consolidation)

It’s worth noting that if your pension contains over £30,000 of guaranteed benefits, you’ll need to get Financial Advice before you make any transfers. For example, if you have a Defined Benefit Pension with a value of £30,000 or more or a guaranteed annuity rate.

Pros of consolidating your pension

  • With just one policy, keeping track of your pensions will be easier
  • You’ll have less paperwork to deal with
  • You could enjoy access to a wider range of investments (if you’re moving them into a SIPP, for example, these often have a large choice)
  • You might pay less overall if you combine your pensions into a policy with competitive fees (especially if your existing pensions are outdated and charging you high fees)
  • You’ll only be paying one management fee, as opposed to multiple

Cons of consolidating your pension

  • Watch out for exit penalties, as these could reduce the size of your pension pot
  • You risk losing out on any appealing features of your existing policies (such as early access or guaranteed annuity rates)
  • You might lose the tax advantages* of keeping your pension pots separate (for example, if you took out your policy pre-2006, there’s a chance you might be able to withdraw more than 25% of your pension tax-free or access it early)
  • Occupational pension schemes often have better benefits, including lower charges

What to do before you decide to combine

Firstly, it’s a good idea to find out how much money you have in each of your pension pots. If you’re not sure, follow these steps to find out.

You’ll need to find out the current and transfer value, as well as what type of pension you’re in. Plus, you’ll need to find out if you have any safeguarded benefits and what these are. Make sure you find out what the charges are on your existing plan, including any annual fees and platform charges. For instance, some Defined Contribution (DC) Pensions have very low charges and some old Personal Pension Plans (PPPs) have high charges.

Lastly, check which investment options are available on the plan you’re considering moving your savings to. You might find there’s a plan available with better benefits than the ‘default fund’ you’ll be automatically opted into.

Remember that consolidating your pension can be a fairly lengthy process. Gathering the information from your existing providers can often take a long time in itself, so don’t go into it thinking it’ll be an overnight job.

Ready to consolidate?

Once you’ve tracked down your existing pension pots, get in touch with the pension provider you’d like to transfer all your money to. This could be one of your existing providers or a new one entirely. It’s best to do your research on the policies to find the one that’s best for you (for example, if you’re particularly interested in choosing a green pension).

If you’re still not sure whether combining your pensions is right for you, why not speak to one of Claro’s in-house Financial Coaches? You’ll get one-to-one support from the comfort of your own home. And with decades of combined experience in financial services, they’ll be able to explain your options clearly. 

To book your coaching session, download the Claro app and create an account now.

Tax treatment depends on your individual circumstances and is subject to change in the future. 

When investing, your capital is at risk.

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