What is pension consolidation – and how do I do it?

9 min Read Published: 18 Jan 2023

What is pension consolidationThe subject of pension consolidation and how to do it is particularly relevant to anyone who has worked in several different jobs and subsequently has a number of pension pots. In this article we explain exactly what pension consolidation is, how it works and explore whether it is the right choice for you.

What is pension consolidation?

During your working life you are likely to work for several employers and have a variety of different occupational pension plans. You may also have additional personal pensions, particularly if you have been self-employed during your career. In some instances it can make sense to combine all of the separate pots into one, making it easier to keep track of your pension to ensure it is being managed as effectively as possible. This process of pension consolidation can be undertaken at any point in your working life rather than it being something you only tackle as you approach retirement.

However, pension consolidation isn't right for everyone and you will have to weigh up a number of factors, including:

  • The types of pensions you have
  • How much each pension is worth
  • If there are any benefits or guarantees
  • If there are any exit penalties
  • If you are satisfied with how they are being managed

Why consolidate your pensions?

The main motivations for consolidating your pensions into one pension pot include the fact that it simplifies managing your retirement savings, it dramatically cuts down on the amount of paperwork you'll have to tackle and it can reduce costs to ensure your money is working as hard as possible for you. However, while all of these factors are attractive, pension consolidation isn't always the right option.

For some people, the nature of their existing pension schemes means it could be detrimental to change them, particularly if doing so will incur financial penalties or mean giving up guarantees and benefits that are worth more than the money you would potentially save. This is why the decision to consolidate your pension shouldn't be taken lightly and, indeed, why we recommended that you seek advice from an independent financial adviser who will be able to assess your specific circumstances. If you do not know a financial adviser that you can trust then you can find one using review sites such as Vouchedfor* or Unbiased*.

Consolidating defined benefit pension schemes

If you have a defined benefit (final salary) pension scheme, it means your employer guarantees a specific pension income and/or lump sum based on the time you have spent working for that employer and the salary you earned. This type of pension is increasingly rare and is now mainly associated with public sector jobs.

In choosing to transfer a defined benefit pension scheme to a defined contribution scheme, as part of the pension consolidation process, you will sacrifice the certainty of a guaranteed (and often generous) lifetime retirement income for a greater level of flexibility under the pension freedom rules. With a defined benefit scheme you can't, for example, take out ad-hoc lump sums. You also typically have to wait until you are 65 to start drawing your pension, whereas with a defined contribution scheme you can draw an income or take a lump sum from the age of 55. Moreover, by transferring your pension to a defined contribution pension you have the ability to invest the money as you wish in order to provide an income in retirement. However, you are then vulnerable to the vagaries of the stock market and could end up losing money, having a smaller retirement income and ultimately exhaust your pension pot before your death.

It follows that, in most cases, the guaranteed income from a final salary pension will be a better option than transferring the funds to a defined contribution pension. Indeed, in most cases it is a legal requirement to seek financial advice before making a decision because of the implications it has on your future financial security. The stance of the financial regulator, the FCA, is that financial advisers should start from the assumption that a final salary pension transfer will be unsuitable for most people. For a more in-depth discussion on transferring defined benefit pensions, read "Should I transfer my final salary pension?"

Advantages of transferring a defined benefit pension scheme

  • It gives you greater flexibility over how you invest and take your money
  • If investment markets perform well, you can end up with more money
  • It removes any risk associated with your former employer later going out of business

Disadvantages of transferring a defined benefit pension scheme

  • You swap a guaranteed income for a pot of money that can run out
  • If the markets perform badly it can reduce your retirement income and reduce the number of years your pension will last
  • It can be time-consuming and costly to transfer out
  • You will be responsible for managing your pension investments
  • The decision can't be reversed once you have transferred out

Consolidating defined contribution pension schemes

Unlike a defined benefit pension scheme, the amount you get from a defined contribution pension scheme is determined by how much you - and your employer - pay in and how that money is invested. In effect, a defined contribution scheme provides a tax-efficient vehicle that allows you to save for retirement, with the potential to withdraw all or part of the money from the age of 55.

It is much simpler to consolidate two or more defined contribution schemes than to transfer a defined benefit scheme, although it remains a decision that shouldn't be undertaken lightly. There are still potential risks that need to be factored in and other considerations to make, including cost, potential investment performance and other benefits that may be sacrificed if you transfer out.

Listen to episode 309 of our podcast for a full round-up of the pros and cons of consolidating defined contribution pensions.


The charges associated with your pension are vitally important as the higher the charges, the more of your pension is being eroded away. When you are considering whether to consolidate your pensions, factoring in how high the existing charges are will form an important part of the decision-making process, particularly if you have older pensions that have higher charges. By combining your pension pots into one and only having a single, lower annual management fee you can make significant savings, which allows you to maximise your pension investment returns. Indeed, the earlier you take control of charges, the more you stand to save - potentially tens of thousands of pounds over your working life

In addition to annual management charges, charges are also a factor when it comes to income drawdown (see below for more information) to fund your retirement. In this instance, it can be cheaper to take income drawdown from one pot rather than to do so from several pots. Also, in much the same way as for annuities, it can be easier to manage drawdown from one source.

On the other side of the equation, you also need to consider whether you will have to pay a charge - or penalty - for transferring out of an existing pension. If you do, you will need to weigh up whether the amount you stand to save is more than the total cost of making the transfer.


Often your pension will automatically be invested in a firm's default pension fund, which may not offer the best possible returns. By consolidating your pensions it should be easier to take greater control of your investments, channelling them into a fund that hopefully offers strong and consistent performance that ties in with your attitude to risk and the stage you're at in your retirement planning journey. While, in theory, you could make changes without transferring the pensions to one pot, in practice this requires a lot more legwork from you in terms of administering and monitoring a number of different schemes with different providers.

Retirement income after consolidating your pensions


If you consolidate your pensions into a defined contribution scheme (such as a SIPP or personal pension) then you will need to choose the underlying investments in which your money is invested, until you decide to start taking pension income. When you decide to start taking money out of your pension (be it income or lump sums) then one option open to you is pension drawdown, if your pension provider allows it. Pension drawdown allows you to take money out of your pension while the remainder continues to be invested. It is one of the attractions of newer defined contribution pensions, which give access to pension drawdown, and a reason why some people consolidated their pensions ahead of retirement. For full details, including how pension drawdown works as well as the taxation and pros and cons read our article "What is pension drawdown and how does it work?"

Annuity purchase

When you reach retirement age you also have the option to use a proportion of your pension pot to buy an annuity, which provides you with a regular income. In terms of pension consolidation, there are two things to bear in mind:

  • Is it likely you will be able to secure a better deal on your annuity if you combine your pensions? If you have a small amount in your pension pot, you may not get as high an annuity rate as with a larger amount and, in fact, you might not be able to get an annuity at all. You can sometimes overcome that by combining several smaller pots. In addition, it can be easier to keep track of one larger annuity payment rather than undertaking the administration involved with a number of smaller annuities
  • Do any of your pension schemes offer a guaranteed annuity rate? This means you are guaranteed a minimum annuity income, even if annuity rates fall. If you have this as part of one of your schemes - you will be able to determine this from the documentation you have relating to your individual pensions - it is usually not a good idea to transfer that pension as you will lose that valuable benefit.

To find out more about annuities, read our article "What is an annuity and how does it work?"

Step-by-step guide to consolidating your pensions

If, having contemplated all of the advantages and disadvantages of consolidating your pensions, you want to go ahead with it, there are certain steps you will need to take:

Step One: Decide whether you need financial advice

Making big decisions about your pensions can have significant consequences, so it pays to get proper advice on the topic, particularly as many of these choices are irreversible. If you are at all unsure what to do, or are contemplating transferring out of a final salary pension scheme, then you should seek advice. We have partnered with VouchedFor to offer readers a free pension healthcheck with a local IFA*. We also suggest you read our article 10 tips on how to find a good financial adviser.

However, if you are simply wanting to consolidate existing personal pensions or other defined contribution schemes and want to do this yourself, then you could use a pension consolidation service such as PensionBee* or Penfold* who can do all the hard work for you. Alternatively, you could just do all the administration yourself.

Step Two: Identify all of your existing pensions

If you have had a number of jobs over the years but haven't kept on top of all of the paperwork, you may not know exactly what pension schemes you already have. If this is the case, there are a number of ways to track down your existing pensions:

  • Approach your former employers for details of the pension scheme you were enrolled in
  • If you know the name of the provider, contact them directly to find out the state of play with your scheme with them
  • Use the Pension Tracing Service, which scans a database of 200,000 workplace and personal pension schemes
  • Use the services of a firm such as PensionBee, Penfold or Profile Pensions to help find your existing pensions and consolidate them into a new pension plan.

Step Three: Contact your existing pension provider

If you decide not to use a pension consolidation service such as PensionBee or Penfold, you will need to contact your pension provider/s to see if you are able to transfer out, whether you will need to pay a penalty for doing so and if there are any benefits you stand to lose.

Step Four: Contact the provider of the scheme you want to transfer into

The next stage is to contact the provider of the scheme you are looking to consolidate all of your pensions into, double-checking it will accept the transfer, if there will be any additional fees levied and, generally, what the terms and conditions are with your new pension product.


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