Who is the best provider for consolidating my pension pots?
29 July 2021
Question by Peter
I have four pension pots - Scottish Widows, Standard Life, Prudential and Utmost. I have read it is better to amalgamate into one provider. Which of these pension companies should I choose. Or should I use something like Pension Bee? I am planning to do income drawdown in the next financial year. Total pension assets approx. £400k. Very much like weekly the blog.
Answered by James Greenly
To begin with, there are a few questions you should ask your four existing pension providers (build a spreadsheet and note down their responses in a table - also ask for it in writing):
1) Does my current pension type allow me to take flexible drawdown?
2) What would the total product/policy charge be on a pension size of £400,000? What about when the pension reduces over time?
3) What available investment funds are there, and what are the charges?
4) Are there any other charges when I go into drawdown?
5) Does my existing pension have any valuable features, guarantees or anything else I should know about before I transfer?
With PensionBee, with a pot of £400,000 you would pay total charges of 0.31% per year, however as your pension reduces over time (as you withdraw money, assuming the growth doesn't support the withdrawals), the percentage charge increases slightly. For example, your charges on a pension of £300,000 would be 0.33% per year.
The above charges work on the assumption that you pick their lowest-cost 'tracker' investment solution. If you opt for a different investment approach, such as a 'Fossil Fuel Free' one, then the charges increase to 0.47%.
One of the main reasons PensionBee are attracting lots of customers is it is a hassle-free way of delegating the upfront consolidation work and future management to a professional pension company. They have an easy to use website and handle all the initial communications with your existing pension companies. If you are happy to allow PensionBee and their investment team to pick the right portfolio for your pension, then it could certainly be an option. You can simply log in, decide how much you want to withdraw and they handle the rest.
However, if you would like to be more involved with how your pension is invested, then they may not be the right route. If you know how you would like to invest your pension, then you should ask your four existing pension providers if they can facilitate the funds/investment choices you want. I would approach with caution here though - when you enter the 'decumulation' stage of your life, making sure you have the right investment strategy is crucial. You need to be confident that the investments you do pick can ensure the sustainability of your desired income levels. Ask yourself honestly, "can I be confident that the investments I have picked can grow sufficiently to sustain my income of £X per year, for the next 20,30,40 years?" - If the answer to that question is no, then I would steer you towards some professional advice. The reality is getting the right mix of investments is far more important than deciding which pension provider is best.
You may find that none of your existing pensions offer a suitable range of investments, or that the charges are too high (if they are above say 0.30% then there are definitely cheaper options). This is not a recommendation, but Vanguard have just entered the UK pension market with a very low-cost option that can offer drawdown. They cap their charges at £375 a year, so on your £400,000 this would equate to just 0.09%. There are then fund charges on top, but you might find that you can tick all your investment boxes with what is available.
Ultimately the best route will be determined by:
1) Charges - the lower the better, as long as the pension provider is financially secure and offers a good service.
2) Investment options - do you want to pick your own? If yes, then having several hundred funds to pick from is ideal. If no, then make sure they offer low-cost 'off the shelf' portfolios, managed on your behalf.
3) Drawdown option - can they actually facilitate you taking an income next year? Speak to them and tell them how much you plan to take, and in what frequency etc.
4) Guarantees - will you be giving up any special features or guarantees that would be lost if you transfer away? It may be that you are best off keeping hold of 1 or 2, and simply consolidating the others.
I hope this helps. Feel free to reach out if you need more support or guidance.
Best of luck with it, and happy retirement in advance for next year!