Should I combine my pensions?

16 July 2021

Question by Maggie

I have two pension pots, one of which is a stakeholder. I will be 60 in 4 years and am anxious my pots may not be growing fast enough. I do not intend to access either of these accounts until I am 65. Can I combine these pensions, or should I leave them as is?

Answered by Boring Money

Hi Maggie,

Good question and one I come across often, hopefully I can help you with some guidance.

‘Am I saving enough into my pension’

The ‘Am I saving enough into my pension’ question is hard to answer without knowing more about you, but there are some things that you can think about.

Combining your pensions now can be useful in some instances, but pension contract terms can vary and some pensions have valuable guarantees attached, which will need to be considered.

You can start by comparing the pensions that you have, by checking with the providers what you pay in charges, if you have any special terms attached, and how you can use your pensions to generate an income in retirement.

5 ways to use your pension for income

Since 2015, the rules on how you draw your pension is a lot more flexible, and there are 5 main ways to use your pension for income:

  1. Annuity - Generate a secure guaranteed for life income, through an insurance contract called an annuity. You basically give an insurance company your pension pots in exchange for an income for life.

  2. Flexible Drawdown - You decide how much you want to draw down as an income, but you also need to make sure the money will last you for the rest of your life.

  3. Uncrystalised Funds Pension Lump Sums (UFPLS)! - My industry is full of unhelpful jargon - apologies I don’t make up the names! In practise this means drawing a lump sum which is in part your tax free lump sum of 25%, and in part taxable as income on the remaining 75% of what you draw. So for example, if you decided to draw ad hoc lump sums from your pension, and you withdraw £1,000, then £250 would be tax free and £750 would be taxable as income at your tax rate.

  4. Take it all out at once - This is in most cases, not a good idea, because of the income tax you would have to pay. But it is technically possible, and occasionally it is the right thing to do for some clients.

  5. Leave it - this is when you don’t need to use it for income, and plan to use the pension as money that you can pass on to loved ones.

A mixture

You can use more than one of these options as well. So understanding the best way to draw your pensions for you, will be key. It is also worth looking at whether the investments within your pensions are in the right place for you, as some pension contracts start investing in lower risk assets and cash closer to retirement. This may be suitable if you are thinking of buying a secure income, but it's not the right approach if you plan to use any of the other four options with your pensions.

I think it is a good time to start thinking about it now, without committing yourself to changes to your pensions, unless it is clearly beneficial to make changes (hard to say without more details).


Think about what you spend now, and what you may need when you stop working. It helps to work this out exactly, but if that feels like an unbearable chore, work backwards instead. What are you able to save now while you are working, and what expenses will naturally reduce or increase when you retire? Take your current salary after tax, and deduct or increase it according to this. Your state pension will not start at 65, so you will also need to think about how you will bridge this gap.

State Pension Forecast

On that note - get your state pension forecast if you don’t know this already. This will help you understand how much of your income will need to be covered by your two pension pots.

Find out here:

Another point to consider, is do you just need to worry about this income for yourself? Or will it affect any dependants or a partner? If you are jointly responsible for generating income in retirement, then think about reviewing it together, as it impacts on each other when one partner dies.

A personal forecast

I think getting a personal forecast of what your retirement may look like, will help you understand if you are saving enough now, or if you should make any changes over the next 9 years, to help you achieve a comfortable retirement.

While you can do this with some online calculators yourself, good financial planning will help you paint the picture in more detail, and many financial advisers do these forecasts without you having to change your existing pensions, unless it makes sense for you to do so.

I hope this helps.

Answered by

Boring Money