Over the course of your career, you have likely moved from one job to another over the years, leading to several workplace pensions bubbling away in the background. For most, they are forgotten about for years, even decades, but bringing them together can help boost your retirement savings quickly.
Consolidating your pensions can appear complicated, but thankfully the process is far more straightforward than it first seems.
Why should you consolidate your pension pots?
The main advantage is simplicity. If you have changed jobs several times, you may have multiple pensions scattered across different providers. Bringing them together can make it much easier to understand how much you have actually saved for retirement.
Consolidation can also save money if some of your older pensions have relatively high charges. Even a seemingly small difference in annual fees can have a noticeable impact over several decades because those fees compound just as investment returns do.
Modern pension providers may also offer a wider range of investment options than older workplace schemes.
Are there reasons not to consolidate your pensions?
There are situations where consolidating can be a mistake. Some older pensions contain valuable guarantees that cannot be replaced once they are transferred. These might include guaranteed annuity rates, protected tax-free cash benefits, or other special terms that were common in older pension contracts. If you transfer away from one of these schemes, the benefits are usually lost permanently.
You should be especially careful if any of your pensions are defined benefit, or final salary, schemes. These pensions provide a promised income in retirement rather than a pot of money.
How to consolidate your pension pots
The first step is to gather information about all your existing pensions. If you know the providers and policy numbers, that is ideal. If you have lost track of some pensions from previous employers, you can use the government's Pension Tracing Service to locate them.
From there, decide where you want your pensions to end up. This could be your current workplace pension or a personal pension/SIPP with a provider you prefer. After your decision has been made, you will usually complete a transfer application with the new provider. They will ask for details of your existing pensions and then contact the old providers on your behalf. After the transfer is complete, check that the money has arrived and verify the amount transferred.
Expert comment
Laura Purkess, Personal Finance Expert at Investing Insiders, said: If you are employed, make sure you are contributing to your workplace pension scheme. You will also benefit from contributions from your employer and get a 25% boost from the government via pension tax relief. It is basically free extra cash.
If you are self-employed, open a personal pension and start contributing regularly. You can opt for a regular personal pension, where your investments are managed for you, or a Self Invested Personal Pension, where you pick your own investments from a wider range of options. You will not get employer contributions in a personal pension, but will still benefit from pension tax relief.
Also, track down your old pensions from past jobs to ensure you are not missing out on any cash. You will need your old schemes' names - ask your old job's HR department if you do not know.
Lastly, consider consolidating your pensions into one pot to keep track of your savings and ensure you are paying the lowest possible fee - but check you will not lose any valuable benefits first.
