As you move through your career it's normal to build up a lot of Defined Contribution pension pots, with many different companies holding them.

In years gone by, many would work for one employer throughout their working life, but times have changed. With many now switching jobs frequently throughout their working life and with the Defined Benefit schemes (which provided a guaranteed income in retirement) less readily available, reviewing and considering consolidating your Defined Contribution pensions is a vital step for retirement.

The level of benefit received from a Defined Contribution pension depends on the level of contributions made, along with the investment returns achieved throughout the pension plan's lifetime.

When it comes to deciding whether or not to consolidate these pots into one larger pot, or to leave them as they are, it's important to fully understand what the pension includes.

For Pensions Awareness Day this year we've detailed some of the most common considerations you should be thinking about; the list isn't exhaustive, but gives an overview of some important factors.

Are there any valuable benefits or guarantees?

One of the most important things to consider is if any of the pots contain any generous or valuable guarantees, such as enhanced or protected tax-free cash. Typically, ‘modern day’ pensions allow the holder to withdraw 25% of the fund tax free once they reach retirement age. However, it’s not uncommon to see some pre-2006 pensions with a greater amount of tax-free cash available - so it's important to establish the level of tax-free cash that is offered by the scheme, as this can be lost on transfer.

Another consideration is the availability of a guaranteed annuity rate. Annuity rates have declined consistently over the last 20 years, so any plan which includes a guaranteed rate could be very valuable when compared to what's currently available.

As well as valuable benefits and guarantees it's important to consider your needs and personal circumstances, including what your objectives for retirement are, to ensure the best plan for you is in place.

How can I access the pension?

Historically, once you reached retirement age an annuity was bought which would then provide you with a guaranteed income for life. However, since the introduction of pension freedoms in 2015 you can now access your pension savings in many different ways.

Buying an annuity is still an option and is still suitable in some cases, but with annuity rates becoming less and less favourable and with the cost of living continuing to rise, accessing a pension flexibly has become much more common.

The majority of ‘modern day’ pensions now offer the following options:

  • Entering into a flexi-access drawdown where you can stop, start, increase or decrease payments as needed. The payments can be taken at different times to suit you, such as monthly, quarterly or annually.
  • Take Uncrystallised Funds Pension Lump Sums (UFPLS). This is a way of accessing the pension by taking a series of lump sums, without going into a drawdown arrangement.
  • Take the whole pot as a lump sum.
  • Purchase an annuity with the fund to provide a guaranteed income.

When it comes to accessing the pension the option(s) taken at retirement depend on your personal needs and circumstances, including your income needs and tax position. It's also important to consider future succession planning and inheritance tax.

The point to remember is if you're considering consolidation into one plan, does this plan allow you to access your funds in a way that's right for you?

What are the ongoing costs and fees?

When looking at pension consolidation it’s important to work out the total cost of the new pension and the investment options available. Stakeholder plans tend to be more cost effective, whereas more complex arrangement such as SIPPs tend to have extra costs.

The most common fees that you would expect to see are:

  • The cost of any ongoing advice that you may receive
  • The cost of underlying investments including any transaction costs
  • The cost of the pension wrapper
  • Any ongoing administration fees, such as if you are in drawdown

The effect of ongoing fees can affect the long-term growth of a pension so it’s important to ensure that any arrangement is suitable and cost-effective, taking into account your objectives and personal circumstances.

Is the product suitable, does it offer the investment options I require?

There are many different types of Defined Contribution pension arrangements such as group personal pensions, personal pensions, SIPPs and stakeholder plans to name some of the most common. Each of these arrangements will have different costs and also offer a range of investment solutions.

It's important to consider the type of structure that is suitable to hold your funds. As an example: are you using all of the features that a SIPP can provide, or do you need a wider range of investment options than is currently available in the stakeholder plan? Each person will have their own objectives and circumstances that will determine the suitability of each pension product; working with a financial planner can help you determine which are most suitable for now and in later life.

When working with a financial planner, you'll have a risk questionnaire done to work out which level of risk is suitable for your objectives, attitude towards risk and your capacity for loss. Someone making pensions savings in their forties may have a greater appetite for investment risk than someone in their sixties about to enter retirement and become reliant on their savings. Therefore it's important to work out the level of risk being taken, as well as the availability of suitable investment solutions to meet your objectives.


When considering a pension consolidation, there's a range of factors to consider. You want to be sure that you're making an informed decision based on your own individual retirement goals and objectives. I would always encourage someone to get professional advice before deciding to consolidate, cash in or access a pension.

The information given and opinions expressed are subject to change and should not be interpreted as investment advice. All data is sourced by IM Asset Management Limited unless otherwise stated. All financial and wealth management services are provided by IM Asset Management Limited which is regulated by the Financial Conduct Authority (FCA), FCA Firm Reference Number 402770.