Consolidating MPF accounts: three ways to tidy up scattered preserved accounts

This article is a rewrite of a report from September 2012.

(Note: parts of the original text were garbled; they have been conservatively reconstructed from context.)

With semi-free choice imminent, providers were polishing their disclosures to win mindshare. For members, rising transparency made it a good time to study trustees’ schemes — especially for anyone holding more than one preserved account.

Why are too many preserved accounts a problem?

A preserved account holds accrued benefits from past employment or self-employment and normally receives no new contributions; without fresh instructions, the trustee keeps the original investment plan — and keeps charging fees. Every job change left unhandled creates another preserved account — hard to manage, and returns can be quietly eaten by fees through neglect.

What are the three consolidation options?

1. Merge into the current contribution account. Under the old rules, money moved there couldn’t move again — but after November 1, those benefits could switch trustees freely, free of the once-a-year limit.

2. Pick one existing preserved account as the hub. Funnel the others into it — suitable for those happy with their current trustee and scheme.

3. Open a new preserved account. If no existing trustee satisfies, choose any preferred trustee, open a new preserved account, and transfer the rest in.

What should you watch with preserved accounts?

• No more dollar-cost averaging: preserved accounts lose the regular-investment averaging mechanism, so market risk runs higher than in contribution accounts — extra caution with high-risk assets.
• Small balances: fold them into the current contribution account; large balances deserve careful scheme and fund selection.
• Trustee incentives: providers offered long-term or one-off perks for preserved accounts. Fee-conscious members could look at providers charging less on preserved than on contribution accounts (e.g. one bank’s guaranteed fund at 2.25% vs 2.7%).
• Timing: opening a new preserved account and transferring takes about a month — guard against selling low and buying high; unless deeply dissatisfied, consolidate when markets are calm.