Why combining pensions into a single pot can make your life easier

Combining different pensions into a single pot is a helpful way to make your path to retirement clear and simple, while possibly saving you money along the way.

Throughout your career, you may have accumulated a collection of workplace pensions that can all help towards your retirement goals. But when these investments aren’t in one place, miscalculations on how much money you have in total and forgetting a pot altogether can be common issues.

In the UK, there are 3.3 million pension pots currently unclaimed, holding over £31 billion, according to the Pensions Policy Institute. To help avoid your own investments from sitting in the pile of forgotten wealth, you might want to consider checking how many pensions you’ve built up and consolidating them into a single pot. Here is a four-step plan to combine your pensions into one.

1. Take a pension roll call

For any job you had after 2012, if you were earning over £10,000 each year and were at least 22, you would have been automatically enrolled in a pension unless you chose to opt out.

Think about your career and make a list of each job for which you would have contributed to a pension. If you think you had a pension for a workplace but can’t seem to locate it, you can use the government’s pension tracer. This will not tell you if you have a pension or the amount in it, but it will allow you to search by employer to find out who holds the pension and how to contact them. Alternatively, AJ Bell has its own pension finding service.

2. Assess your pots

Once you have located all your old pensions, you can get into a little more detail to determine how best to combine them. First, you’ll need to determine whether each one is a defined benefit or defined contribution pension.

Defined contribution pensions simply mean the money inside will become available once you turn 55 (or 57 from 2028) and you can set up different ways to manage the investments, make withdrawals once eligible or do both. These types of pensions can easily be combined with any other defined contribution pensions.

This can be a good time to assess the different fees and strategies you have in place for your investments. The different pots could have a variety of risk levels and could also be charging you a larger sum. Pensions with high fees could be eating into returns and could be better off in a lower-charge investment strategy.

Defined benefit is typically more common in older pensions and means the employer will pay you a certain amount annually for the rest of your life. This amount is usually determined by your salary at the company, and your tenure. These pensions often require advice from a financial adviser before you make any moves, and many providers will only transfer these pensions with the recommendation of an adviser.

3. Choose your provider

There’s a long list of pension providers, and you may already have one through your workplace that suits your needs. You can also choose to opt for a Self-invested personal pension (SIPP), which offers you more control on how you invest your pension than choosing a pre-formed plan.

It’s also important to consider if your current employer would stop making contributions if you moved to a different pension. Check to make sure that you can keep the benefits of an employer contribution before moving, or that there aren’t any other benefits tied to that specific pension plan you may lose. Your provider should be able to inform you if this is the case.

Fees can be one of the main determinants of which pension provider to use. These can range from account fees to charges depending on the choice of investments in your pension. There’s a variety of low charge options available today, and high charges can quickly start to eat into your returns.

Once you have determined which provider is the best fit, you can request for them to transfer your other pensions into a single pot by providing them with the account details. They will then contact the other providers and action the transfer process.

4. Determine how you want to invest

Each person will have different levels of risk appetite, and a lot will depend on your age and how close you are to retirement or whether you’re already in it.

If you are a way off from retirement, taking more risk might appeal as you likely have time to ride out any volatility in the market. However, as you move closer to retirement age, you may choose to take slightly less risk.

The default option for workplace pensions is typically a cautious fund. This is chosen as a one-size-fits-all option, but some may find it is not aggressive enough to meet their investment goals. You will typically have more options via a SIPP than a standard workplace pension.