Should I consolidate my pensions?

As a country, we are not as prepared for retirement as we should be.

Over half of the UK's working population is not expected to meet their target replacement ratio (TRR). The TRR is an industry guide on the proportion of salary needed to maintain a comfortable lifestyle through retirement. Projecting the value of your pension at retirement is important, but is only one part of the planning process. The TRR can give an indication of how long pensions savings and investments can sustain a retiree.

Despite the fact we can ill afford to take our eye off our retirement nest egg, a lot of us do. There are millions of lost pensions in the UK, containing billions of pounds in wayward savings. How much of it belongs to you?

Tracing lost pensions will directly increase your pension savings, but there are several more ways in which consolidating your known pensions might make it more likely that savers will reach their goals for retirement.

Here, we look into a few of the reasons you might consider consolidation, and point out when you might need to seek some advice.

1. Getting a clearer picture of your retirement income 

If you have several pensions with a number of different providers - perhaps workplace pensions from previous jobs - keeping track of exactly how much money you have put away for retirement and if you’re on track to retire comfortably can be difficult. Consolidating your pensions can give you a clearer view of whether your current investments will be enough to support the retirement you want for yourself and, if you happen to be off-track, can make it easier to calculate what you need to do to top-up your pension pots.

2. Easier to manage 

Keeping track of old pensions, especially if the provider doesn't communicate with you regularly, can be challenging. If you decide to put your pensions together, you have fewer details to keep track of, and if you choose a provider that allows you to easily manage your retirement investments online, the process can be simplified further. With things in one place, you free up additional admin time to do other things. For those that want more control over their investments, it makes it easier to keep track of your wealth, check on investment performance, change your investments and set up regular payments or make one-off contributions to your pension when it suits you.

3. Potentially lower fees

Transferring old pensions and keeping them together could help you to lower the fees you’re paying. While price won’t be the only factor when considering whether, or where, to consolidate your pensions, fees can erode your retirement nest egg. It is worth shopping around to make sure you’re getting good value for money. It’s also worth noting that some pension providers may have additional fees that aren’t immediately obvious, making a read of the small print a prudent move, to make sure you avoid any hidden charges.

4. Access to different investments

Workplace pensions are often - but not always - invested in default retirement funds, which may not adequately reflect the individual and the risk profile that is appropriate to their circumstances. Each investor is unique, so you may want greater control and choice about where your money is invested. For many people, after their home, their pension is their largest financial asset. Where your money is invested can be incredibly impactful, both in terms of the returns the investments may generate and also the products and sectors they relate to. For example, by choosing a socially responsible pension your money could support your values, as well as your lifestyle in retirement.

5. Planning for loved ones 

Conversations about finances after a death are never easy, so the process of dealing with finances after a loved one dies should be as worry-free as possible. Having all your pensions in one place can make the process simpler during what is sure to be a difficult time.

For most providers, the process of reporting a death and establishing who the future beneficiary of the pension will be, is kept as simple as possible.

So, how do I consolidate my pensions?

Most pension schemes will allow you to transfer your pension pot to another scheme or to a new provider. This could be to your new employer’s pension scheme, a personal pension or a self-invested personal pension (SIPP).  

Before moving your pension, you should ask your existing scheme administrator for a transfer value (more on this later). You should also check that there aren’t any specific benefits with your pension, such as life cover, that you would lose if you transfer to a new scheme. You also need to ask if there are fees for moving your pension.  Seeking professional advice before transferring any pension is a good idea. 

If you’re thinking about putting your pensions together in one place, there’s more information about finding old pensions and things to consider before transferring them available on our pension consolidation page. Those needing extra help, can book a free call to speak to the team to understand your options. If needed, we also offer a paid financial planning service to create a retirement plan that should help you reach your retirement goals.

Do I need a financial adviser to transfer a pension?

This depends on the type of pension scheme you have.

If your pension has "safeguarded benefits" - such as, for example, a defined benefit scheme - and your pension transfer value is more than £30,000, you will need to take regulated financial advice before transferring to a new provider.  

This rule is to protect you.

It is to make sure you are aware of the pros and cons before you transfer, and are aware of the potential to lose valuable benefits. 

Of course there are many other reasons why you might wish to consult an adviser, including uncertainty about how pensions work or whether they are right for you. You can read more about when you might need to use a financial adviser for your pension in this article. Nutmeg’s team of experts is on hand to help you with any questions around pension transfers that you might have.

Questions our financial advisers have been asked, and the answers:

Can I transfer a pension myself? 

Yes, it’s possible to transfer a pension yourself. Once you’ve tracked down all your old pensions, the logistics of transferring your pension can be relatively straightforward. You should contact:   

1. Your current pension provider and check that the pension scheme allows you to transfer some or all of your pension pot.  
2. The provider that you want to transfer to, to confirm that they will accept the transfer.

What does pension transfer value mean?

The pension transfer value of your pot will depend on the type of pension you have.

If you have a defined contribution pension – the most common type of workplace pension today – then the transfer value of your pension is the value of the investments at the time you are looking to transfer.   

If you have a defined benefit pension scheme – sometimes called a final salary pension – the value is calculated based on how long you’ve worked for your employer and your salary. However, it is important to check fully if you will lose any benefits that you have built up – such as a set level of income in retirement – before you transfer a defined benefit scheme.

There are a number of factors that can affect the pension transfer value for a defined benefit pension: your age, your scheme’s retirement age, life expectancy and the current cost of living. Some providers do not accept defined benefit pension transfers, and many will require you to seek financial advice before transferring.  

What will transferring my pension cost?

The amount you may pay in pension transfer charges will vary from provider to provider and from scheme to scheme, so it is important to check these fees before you transfer.

Some providers will charge hefty exit penalties, that may mean transferring your pension isn’t a good idea. If your current pension provider charges to transfer out, then the pension charges will be deducted from the value of your pension. These fees may sometimes be charged as a flat, one-off fee or some providers will charge a percentage of the total pension pot.

How long does a pension transfer take?

The completion of pension transfers can take longer than changing UK bank accounts, where there is a seven-day guarantee to switch providers. According to industry data, transfers can take between 9 days and 4 weeks. However, the length of time to complete a pension transfer can be longer than this, and vary considerably on a case-by-case basis, as each transfer will depend on a number of variable factors. 

Should I transfer my final salary pension?   

For some people, the ability to take advantage of the Pension Freedoms rules and access 25% of their pension as tax-free cash can be motivation for transferring their defined benefit pension scheme. The Pensions Freedoms rules were introduced in 2015 to allow savers more flexibility in how pensions are accessed, and to appoint beneficiaries, amongst other things. However, people can underestimate the value of the guaranteed pension income over the course of their retirement, which is why it is frequently a better option to remain invested in your defined benefit pension scheme.  

The complexity of the benefits of final salary pensions and the risk of losing them is why these require financial advice for transfers above £30,000. Whether or not you should transfer a final salary pension will depend on your specific circumstances.

Can I transfer my pensions to another person? 

The short answer is no.

Your pensions are personal to you.  Pensions can only be transferred to another person in the case of a divorce or dissolution of a civil partnership (where the money held in a pension is considered an asset) or in the event of your death.  Many personal pensions allow you to nominate who inherits your pension when you die. It is often simple to do, and you can select more than one person to inherit your pension.  Your pension provider or trustees will ultimately decide where your pension savings go. They will take into account your wishes, but they are not bound by them.

Risk warning

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. 

Past performance and forecasts are not a reliable indicator of future performance. We do not provide investment advice in this article. Always do your own research.