How to Access your Pension Pot
Review your Situation
The nature of your working life will largely determine what you have accumulated in terms of pension provision. If you are one of those fortunate few who has worked in the public services all their life or has been employed by a large company with a final salary pension scheme you will be at a major advantage to those who haven’t. These final salary schemes (Defined Benefit or DB schemes to use their technical term) are exceptionally generous in their benefits and financial advisers are united in recommending that you DON’T cash these in but keep them in place, sit back with a smug smile on your face and take the very generous income and benefits they pay out (far better than you could achieve through the open market). If you have a public sector pension scheme it is no longer possible to transfer the notional pot on which your final salary pension is calculated. However, if you are a member of a company final salary scheme your options are much wider.
In the real world, many people will have had more than one job in their lifetime and may well have accumulated a variety of pensions from various different roles. The majority of these are likely to be money purchase (Defined Contribution or DC) schemes where both you and your employer contribute to a pension pot that is then invested on your behalf, alongside other employees, by a pension provider chosen by the company. It is these pension pots that the new freedoms have made available and many pensioners, on reaching the age of 55 are now seeking to manage those pensions in a more hands-on manner than is possible through the limited fund offerings of the workplace schemes. The workplace pension schemes also tend to have larger annual management fees than direct platforms – 1% is pretty much the starting point, particularly if you have left the company and become what is known as a ‘deferred’ member, in which case you may well be paying more for your management charge than those still working for the company – what is known as the ‘active member discount’.
With a number of different pensions from different providers it makes sense to consolidate them all and bring them under a single platform. You have two real options here – you can either bring them all under one of your existing pension schemes, in which case you will be leaving the management of the consolidated pot at the discretion of the chosen pension provider, or you can put the whole lot into a self invested personal pension (SIPP). You will take this out with a new pension provider and it makes sense to set this up before you ask your existing provider to transfer your funds to it.. Which approach you choose rather depends on the level of involvement you want in managing your pension in retirement. As this Blog assumes that you are interested in managing your own future prosperity, we have a large part of the site dedicated to helping you find the most appropriate pension and SIPP provider for your needs.
Getting your Money
The first step is to contact the managers of each of your pensions and explain what you wish to achieve – namely the transfer of your existing pension to your new provider. This is where it potentially starts to become a little tricky, because not all DB schemes are created equal. Some have trustees, whose job it is to look after the interests of the pension holders/employees. This is great in many ways but it does mean that the trustees have to approve each transfer out of the scheme. The Pensions Regulator has given scheme managers up to a year to effect a transfer – and the trustees can even apply for an extension! It therefore makes sense to start the process as soon as you can.
If you are lucky, your DB scheme will be a ‘contract’ one with no trustees to delay matters. This means that the transfer should be effected ‘in a reasonable time’, which can mean anything from 11 days to 93 days according to research conducted by Nutmeg, and depends on the readiness of your existing provider to embrace the new freedoms and on the efficiency of their legacy IT systems. You will have chosen your new provider based on your own specific criteria and your own particular plans as to how to manage your pension pot during your retirement. Now is the time to start investing the pot in the investments you have decided will provide you with the best mix of security, growth or income.
We have looked at a variety of factors you will wish to consider as part of this investment process, in our Investment Approaches to Consider. You can also remind yourself of the risks of investing and explore some of the psychology that is likely to underpin any decisions you might make in the future. To give you some ideas, we have highlighted some of the model portfolios created by the providers, which you may wish to look at. And finally, once you have made your investments there is a section on monitoring the performance of your portfolio.
At the time of writing this, some 2 months after the new freedoms were introduced, pensioners were experiencing delays, excessive transfer charges and other obstacles in accessing their pension pots. We would love to hear your experience of trying to access your money. Feel free to share your thoughts in our Forum Topic on the subject.