How to consolidate your pension in 2022
17 Feb, 2022
Ugh. Pension consolidation. That phrase sounds about as inspiring as an Excel sheet with 50 shades of grey.
But – actually – pension consolidation is a hot topic right now.
What does it mean?
Basically, pension consolidation is when you put all your pension pots - or the majority of them - into one mega pot. Many people open a SIPP (Self-Invested Personal Pension) to do this.
If you've almost fallen asleep already, here's some exciting stuff:
The government gives you £20 for every £80 you put into a private pension! And you get another £20 per £80 if you're a higher-rate taxpayer!
Now that we've got your attention, do check out the winners of our Best for Low-Cost Pension for those with more than £50k to invest.
Have less than £50k to invest? Then check out these other Best for Low-Cost Pension winners.
Why do people choose to consolidate their pension?
You’re probably reading this because you’ve joined numerous pension schemes from different jobs over the years.
And you’re not alone!
The average person has over 10 jobs in their lifetime – which usually means lots of pension plans...
… and future generations face an ever-more-eclectic working life - with grown-up gap years, self-employment and entrepreneurship on the cards.
And that's making our pensions more and more complicated
But – for many of us - it doesn’t have to be this way.
How could you benefit from consolidating your pension?
One of the big advantages of consolidating your pension is that it’s easier to manage the underlying investments. You can also choose the right investment path for you, rather than having lots of disparate pots, each managed in a different way.
You have one password! Yippee!
You’ll know exactly how much you have at any given time.
You could make more returns in the long run, but, as with any investment, this is not guaranteed.
For those who want their money to do good, it can also be a way to choose sustainable pension options.
But not sure what to do next?
We've got it covered.
Here's what you need to know about consolidating your pension in 2022
1 - Trace your old workplace pensions
Use the .gov website to track a lost pension.
You’ll need your National Insurance number and the names of your previous employers. You can also use this service to find previous personal pension plans, but you’ll need the name of the provider.
As we mentioned earlier, during your career, you’re likely to be enrolled in multiple pension schemes. You may even have thousands of pounds stashed in an old fund that you had forgotten about! If so, lucky you!
Recent research from the Association of British Insurers has revealed that lost pension pots may be worth up to £19.4 billion and affect 1.6 million people.
When you move house, you may forget to tell your pension provider your new address, so all that paperwork gets lost.
Fortunately, consolidating your pension can help you get everything back in order.
2 – Find out how much you have in your pension pots
Then work out how much you have in total. It might be more than you think, particularly if you have older pension pots that have been accumulating interest over many years.
Work out how much each pension pot is costing you.
Every pot you have will include management fees, which shouldn't be any higher than about 1 percent.
3 – Look at how each pension pot is performing
Are you getting good returns from each investment? Are some pots not performing as well as others? You don’t want to be trapped in a scheme that is underperforming relative to the market.
4 – Understand how much your consolidated pension should cost you
If you aggregate your pensions online, you should expect to pay in the region of 1% a year all-in. Of this, about 0.4% will be for the administration and about 0.4% - 0.6% will be for the cost of the investments which sit inside your pension. So – if you add together pensions which total £10,000, you will pay about £100 a year in charges.
5 – Choose a new provider!
And choose wisely. Transfers can be as high as 2%, which can eat into your returns in the long run. Compare the market before putting all that money into one pot.
Will you save money compared to having your pension scattered across different pots? What sort of investments will you have access to if you consolidate your pensions into a SIPP? Find out! Your new provider should be there to support, advise and assist you with the actual transfers.
6 - Transfer your pension pots to your chosen provider
This might seem like an even trickier task than just keeping your pension scattered about in separate pots. In fact, recent research from PensionBee found that only 26% of consumers found switching their pension provider 'easy'.
But if you pick the right provider, they should do the hard work for you. This can be invaluable
7 - Make sure you don't get charged more than you should for each transfer
Just to reiterate: losing 1-2% for each transfer can erode your savings over time, so go for a provider whose fees are transparent and easy to understand.
8 - If you are trying to consolidate a defined benefit (final salary) pension, it can get a bit more complicated
You need to seek advice if the pension is worth more than £30,000 - although advisers recommend this even if the pot is worth less than £30,000.
9 – It's wise to keep your current workplace pension
Your employer is legally required to contribute a minimum of 3% to your pension, so if you transfer this or 'opt out', you will lose this valuable freebie - and that extra 1% contribution from HMRC.
Someone on a full-time salary of £30,000 would lose out on almost £1,000 of free money from their boss each year! (and don’t’ forget that some employers contribute more than 3%)
Also, think very cautiously before transferring a public sector pension such as an NHS scheme. You might lose out on the best of three years and a final lump sum. Ask for a pension forecast from your employer if in doubt and, again, seek advice.
10 - Remember - there's no guarantee that consolidating your pension will earn you more money in the long term
But you should find it much easier to manage and track your pension from now on.
Browse our full list of pension providers here.
Check out our overall Best Buy Pension winners for 2022.
Have any other queries about consolidating your pension?