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Combining pension pots at retirement

If you’ve built up two or more pension pots during your working life, it may be easier, and you may get a better deal, when you retire if you combine them.

Combining pension pots at retirement

If you’ve had more than one job during your working life, it’s likely that you may have paid into more than one defined contribution pension scheme. If you’ve got several different pots, it may be worth combining them as you near the date when you want start to drawing retirement benefits.

Below we have outlined all the ways you can use your pension pots when you decide to draw your pension benefits.

Annuity purchase

If you intend to use your pension pots to buy an annuity to provide you with an income in retirement,you may get a better deal from an annuity provider if you have one large pot, rather than several small ones. It will also be easier for you to keep track of a single, larger annuity payment, rather than several smaller ones, each time you receive them.

You may find that some pension pots aren’t big enough to purchase  an annuity or rates may be unfavourable for small amounts, but by combining several small pots into a larger amount, you may be able to purchase an annuity.

You shouldn't, however, combine a pension pot that includes a guaranteed annuity rate (GAR)  with other pots, if the offered annuity rate (GAR) is attractive. The guaranteed annuity rate could be lost if you combine pots.


Income drawdown

Similarly, if you intend to use income drawdown to provide payments in retirement, amongst other things, you should compare charges. It’s likely to be cheaper to take income drawdown from a single, larger pot than several smaller pots. It will also be easier for you to manage if payments are from a single source.

Some providers may have minimum policy sizes, so when you decide to start drawing retirement benefits, you may find that some pots aren’t big enough for income drawdown so you may be able to access income drawdown if you combine your pots. 


Combining pots

If you decide to combine your pension pots, this is done by transferring the pots into a single scheme (either a new scheme or one of your existing pots). Your pension scheme(s) may charge you for transferring your pots. You can find out more about transferring pots here.


Rules applying to defined benefit pension schemes

If you want to transfer any defined benefits into an existing defined contribution scheme, so that you can combine your pension pots, you’re no longer allowed to do this if your defined benefits are in an unfunded public sector scheme.

Unfunded schemes include the Teachers’; NHS; Civil Service etc. The main funded public sector pension scheme is the Local Government scheme.  


Financial Advice and transferring defined benefit pensions

If you need help in deciding whether to combine pots or not, you may want to speak to a regulated financial adviser. In fact, any accepting pension provider may insist you get prior regulated financial advice.

If you’re planning to transfer a private sector (funded) defined benefit pension scheme or a funded public sector defined benefit pension scheme into a defined contribution pension scheme, you will need to take financial advice if the value of your benefits are above £30,000. Even if the benefits are worth less than this, you may also want to take advice. The reason why advice is required is to ensure that you are not giving up valuable guaranteed pension benefits and that the transfer is in your best interests. The trustees of your defined benefit scheme will make sure you have  received advice and will not let you transfer until you have provided evidence that you have received this.


Frequently asked...

Where can I find out more?

If you need more information, please contact us. A pension specialist from our team will be happy to help with whatever pensions-related question you have. Our help is always free.

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