What is pension consolidation?

If you have several bank accounts it can be tricky to keep track of what’s in them. It’s the same for pensions – if you’ve had more than one job, you’ve probably got more than one pension. To make life easier, some people decide to consolidate their funds into one pot.

When you leave a job, it’s easy to forget about the workplace pension you might have had there. Stats from the Office for National Statistics show that nearly 1m people switched jobs in the first quarter of 2022. So it’s not surprising that many of us may have more than one pension to our name. Some people choose to consolidate their pensions, but what does that involve – and are all pensions the same?

What is pension consolidation?

Pension consolidation is when you combine two or more pensions into one larger pot. People often consolidate to:

• organise their assets
• cut down and simplify the paperwork
• potentially save money on fees (because each pension generally comes with its own management fees)
• have one place they can go to check their pension

How to organise your pensions

Tracking down your pensions

First of all, it’s worth knowing that many pension providers are obliged to send members of their schemes annual statements to keep them updated on how much their pension contains. It’s important to write to your old pension providers to let them know if your address changes. You can help locate old pensions by using the Pension Tracing Service (Opens in new window) Updating your address when you move could make a difference. The Association of British Insurers estimates that as of September 2023 1.6 million pension pots worth over £19bn are forgotten about due to people moving jobs.

Work out what type of pension you have

Once your pensions are pinned down, you’ll be able to see how they work. There are two main types of workplace pensions: defined benefit and defined contribution pensions.

If you’ve had a pension for more than a couple of decades it could be a defined benefit type. More recent workplace pensions usually fall under the defined contribution umbrella. The main difference is that a defined benefit pension doesn't depend on investment performance, but a defined contribution one does.

Defined benefit pension

A defined benefit pension is based on how many years you spent in the employer’s scheme as well as how much you were earning when you left the job (or when you retired), although some are based on your average salary during your employment.

These pensions pay out a set benefit income each year after you retire, which may increase in line with inflation, although some pensions cap or restrict the annual increase percentage. These are also known as final salary pensions.

These are a few reasons why some people with defined benefit pensions leave them where they are. It’s a complex area, so it’s important to get some advice from an expert, especially if you're looking to transfer more than £30,000, in which case you'll need to seek regulated financial advice.

It’s important to note that if you’re thinking about transferring a defined benefit pension into another pension pot, the guaranteed income that comes with it could be lost, and you could lose some of its benefits if you transfer. You might also need to pay exit fees.

Defined contribution pension

Unlike older pension schemes, defined contribution pensions are more common in the workplace and are less likely to be affected by exit fees if you want to transfer them to one place, but check with your provider. Your pension funds are invested, which is why some people choose to consolidate them into one pot.

The payments made into a defined contribution pension also benefit from tax relief. If you’re not sure how things work, it’s always worth checking each policy you have with a financial adviser.

Once you’ve worked out what your pension history looks like, you’ll be in a stronger position to decide what’s best for you going forward. It’s important to get some professional advice at every stage to help you figure out whether consolidating your pensions is the right decision.

Introducing Nutmeg

Introducing Nutmeg, the digital wealth manager that's part of the Chase family. You can now consolidate your pensions with Nutmeg (Opens in new window) and keep an eye on performance from the Chase app – so you can see everything in one place.

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Tax rules depend on individual status and may change. Before you transfer, check you won’t lose any guarantees or benefits and that you know what charges you may incur. During any transfer, your investments will be out of the market. If you are unsure if a pension is right for you, please seek financial advice.

Recommended reading

• Ways to make your pension last longer
• Bridging the pensions gap
• Finding a financial adviser

Disclaimer: The Hub is intended as a knowledge portal to provide information on a range of topics, including financial products. Articles may reference products and services that Chase UK does not currently offer. This article is for information only and does not constitute financial advice.

Nutmeg is authorised and regulated by the Financial Conduct Authority in relation to certain investment services and restricted advice only. Chase is a trading name of J.P. Morgan Europe Limited. Nutmeg and J.P. Morgan Europe Limited are J.P. Morgan companies. Products provided by Nutmeg are not guaranteed by Chase. Before applying, you should consider if a Nutmeg account and its features are suitable for you and your investment needs.