How many pensions can I have?
To effectively plan for retirement, you need to understand what pension options are available to you. Read our guide to learn more about having multiple pensions and the options available to youSpeak to a pension specialist
Your pension is the cornerstone of your retirement savings and is crucial in creating financial stability when you stop working.
So it’s no wonder a common question for those planning their future is, ‘how many pensions can I have?’
While there is no limit to the number of pensions you can have, there are some important things to consider.
In this article, we look at the possibility of having multiple pensions, the rules and regulations you need to be aware of, and other essential things your need to consider to manage them.
In this article
Types of pensions
There is more than one type of pension scheme that can be used to provide an income in retirement. Each type has its own rules, eligibility and so on.
The three main types of pension are:
The State Pension is paid by the UK government once you reach retirement age. Eligibility and how much you receive is based on National Insurance Contributions (NICs).
You need at least 10 full ‘qualifying years’ on your National Insurance record to get any State Pension. To qualify for the maximum amount, you will need 35 qualifying years.
Workplace pension schemes, also known as occupational pension schemes, are those set up by your employer.
In general, there are two main types of workplace pensions:
Defined contribution pensions
Most workplace pension schemes today are defined contributions schemes.
With a defined contribution pension scheme, a percentage of your salary is automatically deducted and paid into the pension scheme every payday. In most cases, your employer also pays into it for you.
Your pension contributions are then invested so they can grow. You can then access your pension pot from the age of 55.
Defined benefit pensions
Defined benefit pension schemes are sometimes known as final salary schemes. These pensions are rare now but provide a fixed income for life.
The amount you receive is based on your average career earnings or the salary you earned when you retired.
Private pensions are pension plans that you arrange yourself. These are also known as personal pensions.
Private pensions are usually money purchase schemes (defined contribution), and there are two different types:
- Stakeholder pensions
- Self-invested personal pensions (SIPPs)
A stakeholder pension plan must adhere to specific government criteria. Therefore, you should check that your stakeholder pension provider is registered with the Pension Regulator or the Financial Conduct Authority (FCA).
How many pensions can I have?
There are no limits to how many pensions you can set up. In fact, having multiple pensions is more common than you may think.
According to research by LV, UK workers will change jobs every 5 years on average. With people switching jobs more frequently, it means they likely have numerous workplace pensions.
But it’s not just workplace pensions that have no limit to how many you can hold. Stakeholder and personal pensions also have no limit to the number you can have or pay into.
The only exception to the rule is government schemes such as the UK State Pension.
Can I contribute to multiple pensions?
As we covered above, there is no limit to the number of pension funds you can hold. You can also contribute to multiple pension schemes at the same time.
But while you can contribute to multiple pension schemes, there is a limit before your savings become taxable.
Your allowance is the amount you can save before you pay tax, which applies to all your pension pots. That means you can use your allowance on one pension or spread it across as many as you like.
Annual pension allowance
Your annual allowance is the amount you can save during a given tax year (6 April to 5 April).
The current annual allowance is £60,000 for the current tax year (2023/24). It applies to all private and workplace pensions if you have more than one.
If you go over your annual allowance, tax must be paid by either you or your pension provider.
Lifetime pension allowance
This is the maximum amount you can build up in pension benefits over your lifetime before you pay tax. The current pension lifetime allowance (LTA) is £1,073,100.
Previously, you would have a lifetime allowance charge if you went over the threshold. The rate for those who took their pension before 6 April 2023 is:
- 55% if you get it as a cash lump sum
- 25% if you get it any other way – for example, cash withdrawals or pension payments
However, those accessing their pensions after 6 April 2023 will not pay the charge.
It is worth noting that while the LTA is currently set at £1,073,100, it will be fully abolished from the 2024/25 tax year. This means from the next tax year, there will be no limit to how much pension benefit you can build up over your lifetime.
How can I find out how many pensions I have?
The Association of British Insurers (ABI) estimates around 1.6 million pension pots are unclaimed, worth a total of £19.4 billion. And looking at future projections, things could get worse.
The Department for Works and Pensions (DWP) predict that by 2050, there could be 50 million dormant or lost pension pots.
Keeping track of all your pensions is challenging, especially if you have changed jobs multiple times. But staying on top of this is crucial so you don’t lose out on any hard-earned money.
The Pension Tracing Service is a free service offered by the UK government that lets you find lost pensions or ones you have lost track of over the years.
Be aware that this service will only provide the contact details of the pensions administrator. You will then need to contact them to find out whether you have a pension with them and its value.
Should you consolidate your pensions into one?
There are downsides to having lots of pensions. That is why some people consolidate their pensions.
The pension consolidation process allows you to transfer two or more pensions into one pot. It can provide the following benefits:
- It may reduce how much you pay in fees and charges
- It can reduce paperwork and make your pension easier to manage
- Keeping track of your pension performance may be more straightforward
Consolidating your pensions into one pot has its pros and cons. There are situations when it’s best not to consolidate your pensions which is why it is recommended you speak to an expert pension adviser to find out if it is the right move based on your circumstances.
Retirement planning with Holborn Assets
Pensions play a crucial role in your retirement planning strategy. They provide a steady source of income to cover your lifestyle costs when you stop working and allow you to make the most of your golden years.
Seeking professional financial advice can help you make more informed decisions about your future and ensure you stay on track.
At Holborn Assets, our pension specialists offer expert advice and guidance, helping you better understand your pension options. We work with clients to create tailored plans to meet their retirement needs and goals.
Starting building towards a more secure financial future. Book a free, no-obligation meeting today and learn how we can help you.