How do I decide about combining my pensions? 

Here are a few key factors to consider when deciding whether to consolidate your pensions: 

Can I combine my defined benefit pensions? 

Yes, you can combine your UK defined benefit pensions. This process is called pension consolidation. You can transfer the benefits from multiple defined benefit pensions into a single plan, which can simplify administration and sometimes offer better investment options or lower fees. However, it is important to consider the potential consequences of transferring out of a defined benefit scheme, including loss of guaranteed benefits, and to take professional financial advice before making a decision. 

Do any of my pensions have guaranteed annuity rates? 

It depends on the specific pension plan(s) you have. Some defined benefit pensions may offer a guaranteed annuity rate, which provides a set income for life based on the size of your pension pot and the rate at the time you retire. However, these types of pensions are becoming less common, and most pensions today are defined contribution pensions, which do not offer guaranteed annuity rates. To determine if any of your pensions have guaranteed annuity rates, you should check the details of each plan, consult with the pension provider or your adviser could do this for you. Having a guaranteed annuity rate (GAR) is predominantly a favourable reason for not transferring your pension, doing so would cause you potentially lose out on a higher annual income. 

Am I saving enough into my pension? 

It depends on your personal circumstances and financial goals. You can determine if you are saving enough by considering factors such as your current age, desired retirement age, estimated living expenses in retirement, and any other sources of retirement income you may have. It’s also important to regularly review and adjust your pension contributions to ensure they align with your changing financial situation and goals. As a guide a person should be looking to save 15% of their annual salary value into their pension, however it is worth considering the positive aspects of saving larger amounts within the allowed limits. 

The annual allowance is the limit to the amount of tax-free money you can accumulate in your pension per tax year while still receiving tax relief. This is not the maximum amount you can contribute, but only tax relief is given on contributions below the annual allowance. The way pension savings are measured against the annual allowance varies depending on the type of pension scheme. 

For defined contribution pensions, it’s determined by adding your contributions (including tax relief), employer contributions, and contributions made by others on your behalf. For defined benefit pensions, it’s calculated based on the increase in the capital value of your pension benefits over the tax year. You can request this information from your provider. 

Currently, the annual allowance for most people is £40,000. However, tax relief is capped at 100% of your earnings, meaning if you earn less than £40,000, your tax relief will only be up to your earnings. If you earn less than £3,600, you can still receive tax relief by contributing up to £2,880.