Which pensions should I not consolidate?

In general, you either can’t or probably shouldn’t move these kinds of pension into another pension:

• your current employer’s pension
• defined benefit (DB) pensions (also known as final salary pensions)
• public sector pensions
• pensions with:
  • a guaranteed annuity rate
  • with-profit funds
  • protected tax-free cash
  • a protected early retirement age

For other pensions, it’ll be a case-by-case decision. For each pension pot, you should look at factors like:

• ongoing fees and charges
• exit fees
• investment performance

If you’re not sure about any of these, check with your provider. You should also check with them to see if your pension has any benefits you don’t know about.

Which types of pensions should you consider keeping separate rather than consolidating?

Your current employer’s pension

If you move any money you have in it into a new pension and close it down, your employer may no longer contribute to it.

Defined benefit (DB) pensions or final salary pensions

This kind of pension pays out a secure income for life that rises in line with inflation. You’re very unlikely to get the same level of guaranteed income if you consolidate it.

Public sector pensions

Most public sector pensions, such as NHS, civil service or emergency service pensions, are defined benefit (DB) ones. As with any other DB pension, you’re very unlikely to get the same level of guaranteed income from any other type of pension. 

Pensions with a guaranteed annuity rate (GARs)

These may give you a better annuity rate than you’ll get now. That’s because they were often set in the 80s or 90s, when annuity rates were much higher than they are now. That sort of difference can make this a very attractive benefit! You can learn more in our article on guaranteed annuity rates.

Pensions that have with-profit funds

These should smooth out any risk to the value of your pension savings and some provide a guaranteed minimum benefit or return. Your provider pools your money with other investors’ savings. They invest it all in a range of assets over a set period. Instead of gradual growth you’ll get bonuses and a final payment. They’ll be based on the fund’s overall performance, less any management fees. If you withdraw from the fund before the date you agreed when you took out the pension, you may get less than you expected and maybe even less than the guaranteed minimum benefit.

Pensions with protected tax-free cash (PTFC)

When you reach retirement age and can access your pension savings, you will probably be able to take up to 25% of it as tax-free cash. But some older schemes may let you access more than 25% before you have to pay tax. If your scheme lets you do that, it could be a valuable benefit to hold on to and you may lose this benefit if you transfer.

Pensions with a protected early retirement age

Normally, you can’t take any money out of a pension pot until you’re 55 (rising to 57 from April 2028). But if you have a protected early retirement age, you’ll be able to access your pension savings sooner. Depending on your financial plans and goals, that could be a very useful benefit to keep.

What should I do next?

It’s very important to think carefully if consolidating is right for you. It could save you money in fees and charges, but you need to make sure that you understand the value of any benefits you’re giving up.

If you’re not sure, we’d recommend a chat with a financial adviser. You’ll probably have to pay for any advice you’ll get. If you don’t already have one:

• We have our own Financial Advice service. All of our advisers are fully independent, qualified and consider the whole market - not just L&G products. They’ll give you personalised recommendations based on your full financial picture.
• You can find an adviser at the Unbiased website. You can search for different types of advisers, so you can find one that meets your precise needs.