Pension Consolidation: A Beginner's Guide

The short answer: It can be, if your old pots are defined contribution pensions on higher fees. Combining them can cut charges and admin. But it can cost you if you'd lose guarantees, pay exit fees or lose an employer's payments. A transfer usually can't be undone, so check each pot first.

Is it worth combining all my old pensions into one?

For lots of people with a few old workplace pensions from past jobs, it can be. But it depends on what each pot has inside it, so there's no single answer that fits everyone.

MoneyHelper says moving a defined contribution pension to another scheme might:

• save you money if the new scheme has lower fees

• give you different investment options

• give you more ways to take money out later

Fees matter more than they look. MoneyHelper points out that charges have been falling over time, so older schemes might charge more than newer ones. Even a slightly lower fee can make a big difference over many years.

There's a softer benefit too. If a provider loses touch with you, it won't know how to pay you when you retire. Fewer pots means fewer addresses to keep up to date and fewer letters to lose behind the sofa.

You don't have to go all or nothing. MoneyHelper is clear that you can choose which pensions to combine and which to keep separate.

Capital at risk. The value of your pension can go down as well as up, and you may get back less than you pay in.

What is pension consolidation, and which pensions can you combine?

Pension consolidation means bringing several pensions together by transferring them into one provider or scheme. That can be a scheme you already have or a new provider.

Whether it makes sense depends on the type of pension. There are two main types, and you can check yours with MoneyHelper's tool or by asking your provider. Our guide to the different pension types explains them in more detail.

Based on MoneyHelper's guides to transferring or combining pensions and pension fees. Your scheme's own rules decide what applies to you.

A few limits are worth knowing. Some defined benefit schemes won't let you transfer out once your pension is being paid, or within a year of your normal retirement age. Unfunded public sector schemes, like the NHS or Teachers' Pension Schemes, might not allow it either. And some schemes won't accept transfers in at all.

You can only move a UK pension pot to another registered UK pension scheme. Moving it anywhere else counts as an "unauthorised payment", and you'd pay tax on it.

Will I lose money if I transfer my old pensions into one?

You might, if an old pot has a fee for leaving or a feature you'd give up. That's why the checks come before the transfer form. The transfer value (what the new scheme would get) can also rise or fall until the move happens.

Ask each old provider about these before you move anything:

1. Exit fees. Some providers charge an exit or transfer fee to move your money.

2. Guaranteed annuity rates. Some older policies let you turn your pot into a higher guaranteed income than you'd get elsewhere.

3. With-profits bonuses. Some funds pay an extra amount after a set date. Leave early and you could miss it.

4. Employer payments. If your employer still pays into a pot, many employers won't pay into a different scheme.

5. Protected tax-free cash. GOV.UK warns you could lose a right to take more than 25% of your pot as a tax-free lump sum. You could also lose fixed or enhanced protection.

6. An earlier access age. The normal minimum pension age rises from 55 to 57 on 6 April 2028. Some schemes have a protected lower age, which you could lose by moving.

Tax treatment depends on the individual circumstances of each client and may be subject to change in future.

Your providers can tell you whether any of these apply. If a pot ticks none of the boxes, moving it is usually more straightforward.

When isn't combining worth it?

Sometimes the best move is to leave a pot alone. Based on MoneyHelper's guidance, it may not be worth it when:

• Your employer still pays in. Moving could mean losing their payments. Under auto-enrolment, employers must pay at least 3% of your earnings between £6,240 and £50,270 in most schemes, which is a lot to give up.

• A pot is under £10,000 and you plan to take it in one go. Small pot rules may let you take it as one lump sum without affecting the limits on your other pensions.

• The exit fee is bigger than what you'd save. Do the sums first (there's an example below).

• You'd lose a guarantee or protection from the checklist above.

• It's a defined benefit pension. MoneyHelper says most people are better off keeping these, according to the FCA and The Pensions Regulator.

That last one matters most. Moving a defined benefit pension into a defined contribution scheme means giving up a guaranteed income for life that rises each year. If it's worth over £30,000, you'll have to pay for financial advice before you can transfer it, which can often cost thousands of pounds.

And remember, a transfer usually can't be undone. Never rush it.

How much could lower fees save you?

It depends on your pot size and the charges, but the gap can add up. MoneyHelper's example uses a £30,000 pot:

Annual management charge only. Charges usually come straight out of your pot. Fund, platform or trading fees can come on top.

Example: three old pots, worked through

These figures are made up, to show how the sums work. Say you have three old workplace pensions:

Now say you move all three into one scheme charging 0.3%. That costs £90 a year, so you'd pay £130 a year less.

Now add a made-up £250 exit fee on the Job 1 pot. At £130 a year, it would take about two years for the lower charges to cover that fee. A fee that size might still be worth paying over the long run. A fee of £2,000 is a different story.

This ignores investment growth, keeps the pot values fixed and assumes none of the pots has a guarantee worth keeping. Real pots move about every year, so use it to see how the sums work rather than as a forecast. For a feel of how your pot might grow, try our flexible pension calculator.

What happens to my old workplace pension now I've gone freelance?

Nothing bad. It's still yours. GOV.UK says that if you stop paying in, the money stays invested and you'll get a pension when you reach the scheme's pension age.

What changes is that your employer stops paying in. So once you're freelance, you have a few routes. GOV.UK lists these:

• Keep paying into your old workplace pension, if the scheme allows it. Ask the provider.

• Use Nest, a workplace pension scheme that self-employed people and sole directors can use.

• Set up a personal or stakeholder pension of your own.

Once your employer has stopped paying in, that reason for leaving a pot alone has gone. So going freelance is often a good moment to look at combining, as long as you still run through the checks above.

If you go with Nest, its rules for self-employed members say:

• you can join if you're self-employed, or the sole director of a company with no other staff, work in the UK, and are aged at least 16 and under 75

• you can pay in as little as £10 each time

• it charges 0.3% a year on your pot, plus 1.8% on each payment in

• you can transfer old pots into it

• you keep your Nest pot if you later work for someone else

MoneyHelper says the main differences between pensions you set up yourself are the fees, the minimum and maximum you can pay in, and the investment choices. Our guide to transferring a pension to a SIPP covers one more route.

One more thing if you left within 2 years of joining a defined benefit scheme. You might be able to get a refund of what you paid in or move its value to another scheme. It depends on the scheme's rules.

How do you combine pensions, step by step?

The new provider usually does most of the legwork. Here's the order MoneyHelper suggests:

1. Find all your pots. List every employer you've worked for. The Pension Tracing Service can find a scheme's contact details. You need the employer or provider name, and it won't tell you if you have a pension or what it's worth.

2. Check your old schemes allow transfers out and that you won't lose anything from the checklist above.

3. Pick where the money will go. No comparison site covers every provider, so compare fees, investments and ways to take money yourself. Check the new scheme accepts transfers in.

4. Ask for transfer values from your old providers.

5. Check whether you need paid advice (for example, guaranteed benefits over £30,000).

6. Ask the new scheme to start the transfer. It usually gives you a form and contacts your old providers.

A transfer often takes between two and six weeks, but your provider has up to six months. Your money usually goes into the new scheme's default fund unless you pick different investments, so check where it lands.

How do you avoid pension transfer scams?

Never move a pension because of a cold call, visit, email or text. MoneyHelper warns that it's likely a scam, and you could lose your money and face a large tax bill.

The FCA says cold calls about your pension are illegal, so the safest thing is to hang up. Warning signs it lists include:

• a guaranteed better return on your pension

• high-pressure sales tactics

• unusual investments that tend to be unregulated and high risk

Your old provider has to run checks when you ask to transfer. If it's worried, it can stop the transfer or delay it until you've had a free Pension Safeguarding Guidance appointment. Being registered with HMRC doesn't mean a scheme is endorsed by government. If you're worried about a scam, you can contact Report Fraud on 0300 123 2040.

What can I do now?

Everyone's situation is different, so we can't say what's right for you. These free checks will help you see where you stand:

1. Make a list of every pension you have, with the provider and rough value from your yearly statement.

2. Use the Pension Tracing Service for any you've lost track of.

3. For each pot, note the type, the annual charge, any exit fee, and any guarantee or protected age.

4. Flag any pot your employer still pays into.

5. If you'd like free, impartial help, MoneyHelper has pension specialists you can talk to. For a personal recommendation, you'd need a regulated financial adviser.

If you're weighing up where to keep your pension, our guide to SIPPs and workplace pensions might help.

Still got questions?

How long does a pension transfer take? Often two to six weeks, according to MoneyHelper. Your provider has up to six months to act on your request, and you can complain if it's slow.

Can I consolidate my pensions for free? It depends on your providers. Some charge an exit fee, and GOV.UK notes you may have to pay a fee to transfer. Ask each provider before you start.

Can I combine a final salary pension with my other pensions? You may be able to, but most people are better off keeping it, according to the FCA and The Pensions Regulator. Over £30,000, you'll have to pay for financial advice first. MoneyHelper also has a guide to combining defined benefit pensions with each other.

Can I undo a pension transfer? Usually not. MoneyHelper says a transfer usually can't be undone, so do your checks first.

Do I have to combine all my pensions? No. You can pick which ones to move and leave the rest where they are, such as a pot with a guarantee or one your employer still pays into.

Can the Pension Tracing Service tell me how much I have? No. It only gives you contact details for a scheme. The provider can tell you what your pot is worth.