If you’ve worked for lots of different employers throughout your career, you’ve probably accumulated several pension pots along the way.

Managing multiple pensions can be a bit of a headache. It can also make planning your retirement more complicated. But what if you brought all your pensions together?

Combining your pension plans – or ‘pension consolidation’ – can cut down on admin and may even help you save on costs, meaning you have more money to enjoy in retirement.

Here, we explore what pension consolidation involves and some of the pros and cons to consider.

What is pension consolidation?

Pension consolidation means bringing your different pensions together in a single pension pot. You do this by transferring your pension savings to your chosen pension provider.

Pension consolidation can make managing your retirement savings much easier, as they’ll be in one place rather than scattered across different accounts.

Benefits of combining your pensions

There are several advantages to consolidating your pensions:

1. They're easier to manage

Combining your pensions can cut down on admin. You won’t have to log into multiple accounts or sift through stacks of statements.

It’s also easier to see where your pension money is invested. That way, you can make sure you have the right mix of investments for your goals and attitude to risk. If you’re not confident choosing investments, you can consolidate with a provider who can select investments on your behalf.

2. You’ll have a clearer view of your savings

It’s much simpler to track the progress of your savings when everything is in one place. It’s easier to see if you’re on track to meet your retirement goals and work out how much more you need to save.

3. You could lower your costs

If you consolidate your pensions with a low-cost provider, you could even save on fees. Most pensions charge an annual percentage fee for managing the pension plus a separate charge for managing the investments themselves. These costs can add up over time, especially if you’re saving for a long-term goal like retirement.

The chart below demonstrates the impact of saving just 0.3% a year in fees over 25 years on three different-sized pension pots. It assumes an investment return of 5.5% a year. To keep things simple, we’ve assumed no further money is paid into the pots. The chart shows that if you started with a pension worth £50,000, paying 0.3% less in fees each year would save you more than £13,000 over 25 years. If you had a pension pot worth £150,000, paying 0.3% less in fees could save you almost £40,000.

How a 0.3% saving in fees adds up over 25 years

Notes: This hypothetical scenario is for illustrative purposes only and doesn’t represent a particular investment or its expected returns. It assumes annual returns of 5.5%.

Source: Vanguard calculations.

Disadvantages of combining your pensions

Before you transfer your pensions, there are some potential drawbacks to consider. Some of the reasons not to consolidate your pensions include:

1. You might have to pay exit fees

Some pension schemes might charge exit fees for transferring your funds. These fees could eat into your retirement savings.

2. You could give up valuable guarantees

Some pensions offer valuable guarantees, such as guaranteed income or protected tax-free cash sums. If you transfer to another provider, these benefits will most likely be lost.

If you have a defined benefit – or ‘final salary’ – pension, consolidation is unlikely to be suitable. Make sure you check the terms and conditions of your existing pensions and, if in doubt, speak to a financial adviser.

3. You could lose employer contributions

If you have a workplace pension which you’re currently paying into, transferring your pension may mean missing out on employer contributions. This could really reduce how much income you have in retirement.

How to consolidate your pensions

If pension consolidation is right for you, there are a few steps you can take to make the process smoother.

Start by listing all your current pension schemes and their details. If you’re having trouble tracking down your pensions, you can use the government’s free pension tracing service. This can help you find the contact details for workplace and personal pensions.

The next step is to choose a pension that suits your needs. Things to look out for include the provider’s investment options, customer service and fees. Once you’ve chosen a provider, you can apply for a transfer and they’ll begin the process.

Bear in mind that if you have a workplace pension, you’ll need to have stopped contributing to it in order to transfer the pension in full. And if you’ve already taken benefits from your pension, such as tax-free cash or a taxable income, you must do a full transfer.

Consolidating your pensions with Vanguard

At Vanguard, we’ll take care of the transfer process and combine your pensions into one pot.

The Vanguard Personal Pension is covered by our annual account fee of 0.15%, which is capped at a maximum of £375 per year. See a full breakdown of our costs.

When it comes to investing your pension savings, we offer a range of options. You can build your own pension portfolio from our wide range of low-cost funds. Or you can keep things simple with one of our Target Retirement Funds. These are ready-made retirement portfolios that mature with you, so you don’t have to worry about adjusting your investments as you get closer to retirement. If you want more of a helping hand, our managed service will select investments based on your attitude to risk.

Find out how to transfer your pension to Vanguard and what to know before starting a transfer. 

You can read about some of the other ways to make the most of your pension in our earlier article.
 

Investment risk information

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Eligibility to invest in a Vanguard Personal Pension depends on your individual circumstances. Please be aware that pension and tax rules may change in the future and the value of investments can go down as well as up, so you might get back less than you invested. You cannot usually access your pension savings or make any withdrawals until the age of 55, rising to the age of 57 in 2028.

Your transfer will be sent to us as cash or shares (Vanguard funds only). During the transfer period any cash will not be invested so you could miss out on any increase in the value of your investments should the market rise.  

Any projections should be regarded as hypothetical in nature and do not reflect or guarantee future results.

Vanguard Target Retirement Funds may invest in Exchange Traded Fund (ETF) shares. ETF shares can be bought or sold only through a broker. Investing in ETFs entails stockbroker commission and a bid- offer spread which should be considered fully before investing.

For further information on risks please see the “Risk Factors” section of the prospectus on our website.

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