If you have several pension pots, consolidating your pensions can be a good way to get on top of your retirement savings.
What is pension consolidation?
Consolidating your pensions involves combining some or all of your pensions into one pension pot. Consolidating pensions into a single plan could help you reduce the stress of managing multiple pots, give you greater transparency into their performance, and potentially save you money on fees. That said, there are also a few important considerations to make before deciding whether or not to combine your pensions, which we’ll explore below.
Analysis conducted by the Centre for Economics and Business Research, on behalf of PensionBee estimates at least 4.8 million pension pots are considered to be ‘lost’ among the UK population in 2023, with nearly 1 in 10 workers believing they could have lost a pension pot worth more than £10,000*.
According to the Department for Works and Pensions (DWP), one of the big reasons for the increased number of pension pots is that the average UK worker will have 11 different jobs during their career. And since the introduction of Auto-Enrolment, requiring employers to set up a workplace pension and enrol their eligible employees into it, unless they decide to opt-out, many of us may well end up with a number of pensions, scattered across different providers.
The benefits of consolidating your pensions
It’s easier to keep track of all your pensions
It can be difficult to keep track of your retirement savings when you have more than one pension pot. Consolidating your pensions means that you only need to keep an eye on one pension, and it could also help to reduce the stacks of paperwork you may currently have to deal with. This may be especially helpful if you move home as you reduce the risk of important paperwork getting lost or forgetting to update your details with every provider.
In addition, by combining your pension pots into one place you’ll only have to deal with a single pension provider. This could make it much easier to get help, make changes to your account and allow you to calculate any additional savings you may need to make before you retire.
At PensionBee we’re passionate about making the process of setting up and transferring your old pensions as pain-free as possible. Every customer will have a personal BeeKeeper, who’ll help you every step of the way. All we need is some basic information, such as your provider’s name or a policy number, to get started.
It’s easier to manage your pensions
Many pension providers are quite old-fashioned, communicating mainly via post, and offering clunky online portals. In contrast, there are a few online providers such as PensionBee who offer a modern alternative. Consolidating your pensions means you can choose a new pension plan, and indeed a new pension provider, that enables you to manage your savings via an app, providing clear visibility over your pension and making it easier to keep on track with your retirement goals. You can perform simple tasks from the palm of your hand such as checking your balance at a glance or making a contribution or withdrawal.
Greater investment performance potential
Many people move their pensions because they’re looking for a plan that offers a better return on their investment to boost their retirement savings. Only having one pension to look after means you can choose a single plan that matches your appetite for risk, and how you want your money to be invested.
It’s always important to read pension factsheets, to see how your money will be invested as well as how the investments have performed in the past. However, remember that returns are never guaranteed, and past performance isn’t necessarily indicative of future results.
You could reduce ongoing fees
Each time you leave a job, and therefore a pension pot behind, your old employer will no longer be contributing to it and yet you’ll still be charged a fee for the provider to manage your pension. Consolidating pensions also makes it easier to monitor and potentially reduce any administrative fees you’re currently paying.
Many providers make their fees look lower than they actually are by sneaking extra charges like ‘investment charges’, ‘contribution fees’ and ‘inactivity fees’ into the small print. If you combine your pensions into a new plan, you may be able to save money on these fees - which could be eating away at your old pensions.
PensionBee only charges a single annual management fee, with no hidden costs. Plus, if your pension pot size is larger than £100,000 we’ll halve the fee on the portion of your savings over this amount. The only time you’ll pay anything extra is if you transfer to us and take your whole pot within 12 months, at which point a full withdrawal fee of £150 will apply.
More flexible access to your money
Thanks to pension legislation changes in 2015 people now have greater control over how they can use their pensions. Prior to these changes, a retiree’s only option would be to purchase an annuity. However, people now have the option to withdraw income directly from their pension pots through what’s known as income drawdown. This allows you to leave your pension invested while taking some of it as cash as and when you need it.
Unfortunately, if your old pensions were set up before 2015 it’s unlikely that you’ll be able to use income drawdown. However, transferring your old pensions into a new plan will mean being able to take advantage of income drawdown and can help you to gain greater control over your money. This is one of the biggest benefits of consolidating your pensions.
What you should be aware of before consolidating pensions
Are there exit fees?
It’s important to check with your current pension provider whether there are any exit fees for transferring your pension to another provider. The fee will usually be a percentage of your pension savings, although if your pension’s in a ‘with-profits’ fund then your exit fee may come in the form of a Market Value Reduction (MVR). An MVR reduces how much of your investment you get back in order to protect the policyholders who remain invested in the fund from a high volume of withdrawals being made.
PensionBee will always tell you if we find an exit fee above £10, however, not all providers will do the same. As a pension is a long-term investment, you may weigh up the pros and cons and still decide to transfer your money despite an exit fee, but it’s always worth giving this some thought before doing so.
Do you have a defined benefit pension?
If you have a defined benefit pension, (also known as a ‘final salary’ scheme) and it has a value greater than £30,000, you’ll be required to seek independent financial advice before you can transfer it.
Do your pensions have any other special benefits?
Some pension providers offer special benefits with your pension, which may be lost if you decide to transfer out from their scheme. So, it’s always important to check whether you’re entitled to any of these and if you still want to go ahead with the transfer.
Examples of special benefits can include the below:
- A guaranteed growth rate on your pension
- A protect age pension, giving you access to your pension before 55
- Allowing you to withdraw a higher amount of tax-free cash than the standard 25%
PensionBee will always tell you if we find any special benefits, allowing you to decide if you still want to go ahead with the transfer.
How well are your existing pensions performing?
You’ll no doubt be keeping an eye on how your pension’s performing including how it has done historically. You can then compare this to the past performance of investments with other providers to see whether it may make sense for you to transfer. Again, past performance is a guide and does not guarantee future returns.
How to consolidate your pensions
To consolidate your pensions you’ll need to provide information to your new provider. This can include details like the provider name or a policy number. You can usually find this information through any old paperwork you may have, or by speaking to the provider directly.
If you want to combine your pensions into a PensionBee plan, the more information you can give us about your providers the faster we can find and transfer your money. If you don’t have this information to hand though, don’t worry, as you can always add it later in your BeeHive.
You can also tell us about the pension you have with your current employer, however, we won’t be able to transfer it until after you‘ve changed jobs and received your final employer contributions to ensure you don’t lose out.
How long does it take to consolidate my pensions?
On average it can take up to 12 weeks to locate and transfer your old pensions. However, transfer times vary between providers and depend on how much information your new provider has about your old pensions. It also depends on the method of transfer used by your old providers. Whilst some providers use fast and secure electronic methods, others still use a manual process of sending paperwork through the post. This old paper-based process can very much slow the process down.
Seek professional advice on pension consolidation
While there are many benefits in consolidating old pensions, doing so may not make sense for everyone. Seeking advice from a professional financial advisor should help to clarify if transferring out and combining your pensions will benefit your personal circumstances.
Combining pensions with PensionBee
Combining pensions into a single plan can seem like a complicated process, but we do our best to keep it simple.
You can sign up with us in just a few minutes on our website, or through our app. You’ll then be assigned your very own BeeKeeper who’ll be on hand to support you through the process, answer any questions or concerns you may have, and keep you up-to-date throughout your journey with PensionBee. Get started here.
*A ‘lost’ pension pot is defined as one in which the connection between the owner and the pot is currently cut off. This doesn’t mean these pension pots are lost forever and they’re likely recoverable.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
