Should you combine your pensions?

5 min read


Take a look at our pros and cons to see if having all your pensions in one place is suitable for you.

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As the world of work changes, many of us are ending up with more than one pension pot from different employers. You may be wondering if it’s better to keep them separate or combine them, but there’s not really a simple answer – it depends on your personal situation and the pensions you have.

There are two types of pension – defined contribution (DC) and defined benefit (DB) pensions. DC pensions (the most common type) are where you build up a pot of money over your working life. Contributions come from you and possibly your employer, providing you with an income in retirement. DB (or final salary) pensions are company pensions that pay you a set income based on how long you work for the business and how much you earn. They provide a valuable guaranteed retirement income, but aren’t that common now.

How do you go about transferring your pension?

DB pensions

When it comes to DB pensions, the Financial Conduct Authority (FCA) says that people should begin by assuming that staying in the scheme is the best option for them. That said, in some situations, there may be an advantage to transferring into a DC pension.

The UK government insists you take advice from a regulated financial adviser if you’re thinking of doing this and the value of your pension benefits are worth more than £30,000.

For more information on transferring from a DB scheme, take a look at our Good with your Money guide, Five good reasons to transfer out of your company pension....and five good reasons not to.

DC pensions

For DC pensions, most schemes will allow you to transfer your pot to another pension scheme – whether that’s your new employer’s scheme or a personal pension.

The first step is to check with your provider if there’s any reason you can’t switch. Then contact the provider you’re switching to, to check if you should start the transfer through them or your old provider.

Visit the Money Advice Service website to find out more about the key things you should consider before transferring your pension.

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What are the pros and cons?

There are pros and cons to transferring and it’s important you have all the information you need to make the right decision. Unless you feel very confident, it’s a good idea to get financial advice before taking the plunge.

The pros
  • It’s easier: it can be difficult keeping track of lots of different pensions. By merging them into one pot, you’ll have a clearer picture of what you’ve got – and there’s a lot less paperwork and passwords to keep on top of.
  • There may be lower charges: you might want to switch to take advantage of lower fees on your pension pot.
  • You could have more retirement options:  if you’re coming up to retirement and your old pension doesn’t offer you the retirement income options you want, transferring to one that does could be a good idea.
  • There may be better investment choices: if your previous pension offers a limited investment choice or you think it’s underperforming, transferring it could make sense. But remember there are no guarantees that transferring will mean you get a higher retirement income!
  • You could get a potentially higher retirement income: if you plan to buy an annuity (where you use your pension pot to buy a guaranteed income for life), you might be able to get a better annuity rate, and therefore a higher income, with one big pot rather than two or more small ones.
The cons
  • There’s less diversification: when you pool all your pensions into one pot, you‘re putting all your eggs in one basket. If the pension you choose to transfer to doesn’t perform well then that’ll affect all your pension money.
  • You may be charged a lot: charges for transferring out of a pension can be significant – they can run into thousands of pounds, depending on the size of your fund.
  • You could lose valuable benefits: some pension schemes, for example, entitle you to take more than the standard 25% in tax-free cash. Others might give you better protection from inflation, allow you to take your pension earlier than the usual age of 55, or come with a Guaranteed Annuity Rate (GAR). If your pension has a GAR, it means your provider will guarantee to pay you a minimum level of income for the rest of your life, in return for your retirement savings. Because this is a particularly valuable benefit, you have to get financial advice before you transfer a pension worth more than £30,000 if it has a GAR.
  • There are advantages to having a small pot: small pension pots come with particular privileges that can be very useful. For example, you can cash in small pots of less than £10,000 (known as trivial pots) and still continue to pay into another pension up to the annual allowance of £40,000. Usually when you start to take income from a pension, the amount you can continue to contribute to a pension drops to just £4,000 a year

Where can you get more information?

There’s lots of support out there if you’re confused about your options. Take a look at the following sites for more information.

The Money Advice Service for:

GOV.UK for:

Royal London for:

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