Should I transfer and combine my pensions?

Should I transfer my pensions?

If you’ve had more than one job, there’s a good chance you’ve built up a few pension pots along the way. Different providers, different logins, different bits of post turning up at random intervals – it can get messy fast.

It’s completely normal to wonder whether transferring your old pensions into one place makes sense. For some people, it can simplify things and reduce costs. For others, it could mean giving up valuable benefits.

There’s no one-size-fits-all answer. But there are some sensible things to check before you decide.

Below are four key areas to think about when considering a pension transfer.

Important: This article is for information only and isn’t financial advice. Pension transfers aren’t right for everyone, and in some cases you may need regulated financial advice before transferring.

1. Simplicity and visibility

One of the biggest reasons people choose to consolidate pensions is ease. Having multiple small pots with different providers can make it harder to:

• see how much you’ve saved overall
• understand how your money is invested
• keep track of charges and performance

Bringing pensions together can give you a clearer picture of your retirement savings in one place, with one provider and one set of communications.

That said, convenience alone shouldn’t be the only reason you transfer. It’s important to balance simplicity with cost, investment choice and any benefits you might be giving up.

2. Fees and charges

Charges matter – especially over the long term. Pension fees are usually taken as a percentage of your pot each year, and even small differences can add up over decades. Lower charges don’t guarantee better outcomes, but higher charges do eat into returns. It’s worth checking:

• your current provider’s annual management charge
• whether there are any additional platform, fund or administration fees
• whether your provider charges a fee to transfer out

If you were 35-years old with a £10,000 pension pot invested for 30 years until you were 65-years old, with a 7% annual investment growth performance and a 2% annual fee, your pot could be worth £44,452. If you had been with a pension provider with just a 0.75% annual fee, this same pot might be worth £64,994. This difference in fees might cost you £20,542.

Some older pensions may also apply:

• exit fees when you transfer
• fixed charges, which can disproportionately affect smaller pots

Exit (transferring your pension over) and withdrawal fees are bad in general. Percentage exit fees are particularly bad for those with large pots, for example a 1% exit fee for a £100,000 pension would give a massive £1,000 exit fee.

Fixed fees are particularly bad for those with smaller pots, for example a £50 fee for a £500 pot would represent a 10% reduction in the size of your pot. This is why it is worth assessing how big your pot is, how far away you are to retiring, and especially all of the hidden fees on an annual, exit and withdrawal basis.

At Penfold, we keep fees simple. We charge a single annual fee:

• 0.75% for BlackRock funds
• 0.88% for HSBC funds

There are no exit fees and no charges for moving or withdrawing your pension as an annuity, lump sum or through drawdown. As always, you should compare this with the full cost of staying where you are.

3. Investment risk and suitability

When you transfer a pension, your money is usually sold from its existing investments and reinvested in new ones. That means:

• future performance may be different
• there’s no guarantee your pension will be worth more after transferring

Past performance isn’t a guide to the future, and no pension provider can promise returns. What is worth checking is:

• how your existing pension is invested
• the level of risk you’re currently taking
• whether the investment approach of a new provider suits your time horizon and comfort with risk

If you’re unsure, taking independent financial advice can help – especially if your pension makes up a significant part of your retirement savings.

4. Guarantees and safeguarded benefits

This is the most important area to check – and the one people most often overlook. Some pensions include valuable guarantees or safeguarded benefits that you would usually lose if you transfer. These can include:

• Defined benefit (final salary or career-average) pensions, which pay a guaranteed income for life
• Guaranteed annuity rates, which can be far higher than what’s available today
• Guaranteed investment returns
• Enhanced or guaranteed death benefits
• Protected tax-free cash of more than 25%
• Protected pension ages, allowing access earlier than the normal minimum pension age

If you have a defined benefit pension or other safeguarded benefits worth over £30,000, you are legally required to take regulated financial advice before transferring. In many cases, transferring these types of pensions is unlikely to be in your best interests – but this depends on your individual circumstances.

This list is not extensive, and as mentioned above, if you have any advantages (guarantees) in your current pension, these will be lost by transferring to a different provider. Therefore, it is good to look at the added advantages (guarantees) that a pension scheme may have in order to make an informed decision.

If you are unsure if your current pension offers any advantages (guarantees), you should contact them and check before deciding to transfer your pension! If your current pension offers any of advantages (guarantees), you should consider the potential impact of losing any guarantees before transferring a pension to a new provider.

Can I change my mind after transferring?

You’ll usually have a 30-day cancellation period after a transfer completes. However:

• your previous provider may not accept the pension back
• any guarantees or protected benefits may be permanently lost
• if investments fall during that time, the amount returned could be less than you transferred

This is another reason to be confident before going ahead.

Watch out for pension scams

Pension scams are sadly on the rise. Scammers often contact people unexpectedly and pressure them into transferring their pension quickly. Be very cautious if someone:

• contacts you out of the blue about your pension
• promises early access to your pension
• offers unusually high or “guaranteed” returns
• encourages you to take cash and reinvest it elsewhere

Once a pension is transferred to a scam, it’s usually gone – and you could face a large tax bill as well.

You can learn more at MoneyHelper or report concerns to Action Fraud.

So… should you transfer?

For some people, combining pensions can make retirement saving simpler and easier to manage. For others, staying put, especially where guarantees are involved, may be the better option.

The key is understanding what you have now, what you’d be moving to, and what you might be giving up along the way.

If you decide transferring is right for you, we can help manage the process – without paperwork headaches or transfer fees.

What next?

If you have questions, you can email us at hello@getpenfold.com or chat to us online. You can also:

• Find our more about the Penfold pension
• Read our pensions FAQs
• Create an account and start your transfer

With pensions, as with all investments, your capital is at risk and the value of your pension with Penfold may go up as well as down. You may get back less than you put in.