Combine your old pensions – advantages and disadvantages for directors

If you’re a professional working via your own limited company, it’s highly likely that you have spent time working for a number of employers during your working life.

You may have contributed to several occupational pension schemes in the past. You may also have made contributions to a personal pension plan.

In fact, it isn’t unusual to have 4, 5, or possibly more separate pensions.

Although this isn’t necessarily a problem – each pension may offer competitive returns – a growing number of professionals are opting to consolidate their disparate pensions into a single easy-to-manage scheme.

Pension consolidation is growing in popularity

In this article, we look at what pension consolidation involves and the pros and cons of combining your old pensions.

Before we look at the advantages and disadvantages of consolidating older pensions, if you have a final salary (defined benefit) scheme, in most cases, there will be no benefit in moving your pension.

It is also mandatory to seek regulated financial advice if you are considering transferring out of a pension scheme with safeguarded benefits worth more than £30,000. You can read more about the requirement in the FCA’s pension transfer guidance.

In the majority of other workplace pensions – where performance is based on the success of investments (minus the impact of scheme charges), you might consider moving your pension to a single consolidated plan, such as a SIPP.

It goes without saying that you should always seek professional advice before making any changes to your pension arrangements, as even small changes now may have a significant impact on your pension returns when you retire.

The UK Pensions Dashboards should ultimately make it easier for people to see information about their pensions in one place. Pension schemes and providers within scope are being connected in stages, with a final connection deadline of 31 October 2026.

Advantages

• You will be able to access one single, web-based, online pension plan, rather than dealing with a number of separate, often hard-to-understand plans.
• Depending on the new scheme, you may have more control over your pension, including choosing the type of funds you want to invest in and the level of risk you are willing to consider.
• You may be able to set up and change your contributions via an app or online, and decide whether to make contributions direct from your limited company or using personal income. For directors, company pension contributions can be particularly tax-efficient.
• Your pension plan fees may be reduced if your new provider charges less than your existing schemes. Always compare the full costs of the old and new arrangements before transferring.
• You will have a clearer overview of how much your consolidated pension is worth and how your investments are performing.

Disadvantages

• Some pension schemes may charge exit fees should you choose to move away.
• If you have a final salary (defined benefit) pension, you’re very unlikely to benefit by converting this plan into a consolidated one. Final salary pensions can provide valuable guaranteed income that isn’t directly dependent on investment market performance. The FCA’s starting position is that transferring is unlikely to be in the interests of most consumers.
• If one of your pensions has a guaranteed annuity rate (GAR), that is typically another red flag for transferring out. If you have a plan with a GAR, you may be able to buy an annuity at a predetermined rate which could be significantly better than the rate otherwise available when you retire. This type of benefit is often found in older pension policies.
• Check for other valuable benefits before transferring. Older pensions can sometimes include protected tax-free cash, a protected pension age, with-profits bonuses or other guarantees that could be lost if you move the pension.
• You may be concerned about moving all of your plans into one single plan – putting all of your eggs in one basket. However, a single pension can still hold a widely diversified portfolio. You should also check what FSCS protection applies to the provider and investments you are considering, as protection varies according to the type of pension, investment and circumstances.
• If you choose an IFA to help consolidate your pensions, how much will they charge for their advice and help? You need to offset any charges against the risk of consolidating on your own. Good-quality professional advice can be particularly important where an existing pension contains valuable guarantees or other safeguarded benefits.

Be prepared in advance

Before you do anything, take some time to gather the paperwork for your existing pensions.

If you can’t easily locate these details, you can either get in touch with your former employers and/or use the Government’s Pension Tracing Service.

You can also read our guide to paying into a pension from your limited company if you plan to continue funding your pension after consolidating your old schemes.

Consider taking professional advice before doing anything, as any actions you take now could have a significant impact on the money you receive at retirement. For limited company directors, consolidation can also sit alongside tax-efficient company pension contributions.

Disclaimer: This is general information only and not personalised financial advice. Pension rules can change, and decisions may significantly affect your retirement income. Always consult a qualified financial adviser before taking action.