In our first blog on consolidation, we helped you work out if it’s something you should be considering. If you decided it’s something you’d like to do, this blog will help you understand what steps you need to take to consolidate your pension.
What’s involved in consolidation?
If you want to consolidate Defined Contribution (DC) pension pots, the process for most people is quite simple. You’ll need to have a record of your pension pots and which pension providers manage them. You can use the government’s Pension Tracing Service to search for pension schemes linked to your previous employers, if you haven’t kept track of your pots.
First, contact the pension provider you want to transfer your other pots into. Often this process is done online. Next, provide them with a few basic details: Name, NI number, policy numbers of your pension accounts or employer names. The pension provider will contact the other pension providers and arrange for your money to be transferred.
In some instances, the pension providers from whom you are moving your money will send you forms which you need to complete and post back to them. The pension provider handling the process should keep you advised of the status of the transfer.
If you want to consolidate Defined Benefit (DB) pension pots, you will probably need to seek financial advice. This is because moving your DB pension can cause you to lose out on some of the associated benefits.
If I want to go ahead, how should I decide where to put my money?
If you do want to consolidate, you will need to choose carefully the provider into which you wish to consolidate your pension pots.
It’s worth remembering that generally, pension providers chosen by your employer have lower charges and have fund options that are governed by a committee of investment professionals allowing you to leave the management of your money in the hands of experts. Opening a personal pension can give you more control over your money, but you’ll need to actively manage it to some extent.
What to look for when choosing where to consolidate:
1. Compare the charges of the pension accounts that you might consolidate into:
Remember, these charges can have a huge impact on the size of your pot. For example, a person who is able to eventually build up a pot of £106,800 over their career, would pay £13,200 in fees if the charges on their pension account were 0.5% per annum. The same person, if they were paying a fee of 1%, could end up paying £25,200 in fees. Therefore, it’s important to consider the level of charges when you choose a pension provider and scheme, even if the difference seems small at first.
2. Compare the fund options available:
Check the fund options available for you to invest in and whether they meet your requirements. Remember, as you get closer to retirement, you may want to invest in less risky funds. Alongside that, even though past performance is not a guide to how funds will perform in the future, you may want to compare the returns generated by the funds in the different pension schemes to ensure they are comparable to each other.
3. Compare the options that the pension provider gives you to access your money when you retire:
Once you reach retirement, it’s important to have flexibility to access your retirement pot in the way you wish. A lot of people now access their pension pot in a flexible manner through the drawdown option. Some providers might restrict how many times you can withdraw in a year or the process to access it might not be straightforward. Check which options will be available to you and how easily you can access these.
Gather details of all your pension pots so you’re ready to communicate these to your main pension scheme provider.
Maji makes it easy to log and track your pension pots so you can make an informed decision. You can even receive a live valuation to see how much is in each account. You can also access support from our Money Heroes, a team of coaches and advisors who are on hand to help.
Get in touch with us to find out more about how to get access to a Maji account through your workplace.