Having “a” pension can actually be something of a misnomer, with many people accumulating several throughout their working lives.
You could have had a number of different employers, started your own private pension, or a combination of the two, and find yourself not quite knowing what’s where.
In fact, PensionsAge found that two-thirds of UK workers have more than one pension pot.
The UK government is mandating consolidation of small pension pots into larger, higher-value schemes in order to reduce fragmentation. It is also proposing to create fewer but larger “megafunds” to boost investment returns.
With this in mind, if you have multiple pensions, consolidating them into a single plan can give you more control and make your retirement planning easier.
Read on to discover some of the pros and cons of consolidation and how a financial planner could help.
The pros of consolidation
It’s easier to manage your money
Having several pension pots can mean a lot of time spent checking, tracking, and monitoring your funds. Bringing them all together into a single pot means one provider, one statement, one account, and one set of paperwork.
As well as reducing your admin time, consolidation also helps you monitor your funds, tracking your progression and making sure you’re on course to achieve your retirement goals.
Plus, when you’re ready to start drawing your pension income, it will likely be considerably easier to use a single provider rather than trying to draw from several different pots.
You could access investments that align better with your values
If you have a number of pensions, you might either have limited investment options (such as in a workplace pension) or find that your investments are somewhat sprawling and disconnected.
Shifting all your funds into a consolidated pension can allow you to access more funds that better align with your personal investment strategy. For example, you may wish to invest in ESG funds or create a better balance within your pension portfolio.
Your fees might be lower
Some pension schemes charge fees for administration or management. If you have multiple pensions spread across several providers, you could end up paying a lot in fees, which can add up over time.
If you bring all your pensions together into one fund, your charges may be lower. As your pension is a long-term investment, even a small reduction could make a significant difference over time.
You can usually manage your pension scheme online
Most modern schemes will allow you to manage your pension through an online portal, so you can easily view and track your investment performance and get your most recent valuations.
There are also sometimes options for fund switching, but we recommend you speak to us before taking any action.
You’ll have more flexibility in accessing your funds
Consolidating into a single pension plan means you will have greater control over when, how, and where you start drawing your pension income.
This can be a significant advantage in particular if you’re living or working abroad, or if you’re planning to retire outside the UK.
The cons of consolidation
You may need to pay transfer charges
While some schemes allow you to make free transfers, you could find some older ones add exit penalties. This could be applied as a fixed cost or a percentage of the funds. If you’re over 55, the Financial Conduct Authority (FCA) has capped this at 1%.
There may also be administration fees attached to transferring from one or both of your old and new pension providers.
If you’re planning to consolidate multiple pension pots, you’ll need to calculate if these fees and costs make it worthwhile to move.
You might miss out on valuable benefits
If one or more of your pension pots is a defined benefit (DB) scheme as opposed to a defined contribution (DC) scheme, you’ll need to carefully assess whether the benefits you’ll be losing are outweighed by any you might gain from consolidation.
A DB pension offers you a guaranteed regular income for life, and can provide more security than DC schemes, which are linked to investment performance.
If you’re thinking of transferring a DB pension into a DC scheme, you’ll need to seek professional financial advice if your funds are worth more than £30,000. This is to ensure you’re aware of any potential losses or risks and understand any potential implications.
There are two main options for consolidating and transferring your pensions overseas
If you have multiple pensions you’d like to consolidate and transfer overseas, there are a few options open to you.
One common route is to transfer them all into a self-invested personal pension (SIPP). Some firms market these as “international SIPPs”, and the FCA has expressed concern regarding the charge structures of some of these schemes. So, if you are considering choosing one of these, make sure you understand all of the charges and exit fees before you commit.
In many cases, you can hold a SIPP in multiple currencies. This means that you’re more likely to know how much income you might receive, rather than being exposed to currency fluctuations.
Another option is to consolidate your pensions into a qualifying recognised overseas pension scheme (QROPS), which also offers the benefit of holding your pension in multiple currencies.
Being able to hold your pension fund in the currency of your choice helps ensure you know the amount of income you can expect to receive, instead of being open to currency fluctuations.
You can typically transfer up to the Overseas Transfer Allowance of £1,073,100 into a QROPS. Anything you transfer over this threshold will generally be subject to the Overseas Transfer Charge, which is set at 25%.
Depending on where you are, you can generally access a 25-30% tax-free lump sum of your pension, with any further withdrawals charged at your marginal rate.
From April 2027, any unused funds from your QROPS will be included in your estate for Inheritance Tax purposes.
Get in touch
The rules around consolidating your pension can be complex and it’s important to find the right route for your own particular circumstances.
Email enquiries@alexanderpeter.com or give us a call on +44 1689 493455 and we’ll be happy to help.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
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