Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
How to track down lost pensions and should you consolidate them?
The typical UK adult is now set to work for 11 different companies over the course of their career. The concept of a job for life is a rare one these days and, as a result, workers will tend to accumulate several smaller pension pots over their working life rather than just one. Keeping track of them can be tricky.
Auto-enrolment has got more people saving for retirement than ever before but many savers are not aware of which provider holds their pension, where it is invested or, crucially, how to track it down if they move job.
Research by adviser firm Tilney reveals that one in five UK adults has lost track of at least one pension pot. Losing paperwork, forgetting to notify the provider of a change of address or simply not taking an interest are all common reasons for losing sight of savings. And, worryingly, some 20% of people say they would have no idea how to find their pension if they did lose it.
Andy James, head of retirement planning at Tilney, says: ‘Alongside property, pensions represent one of the largest forms of private wealth in the UK and, for most people, are going to be critical in funding their retirement lifestyle.
‘Yet, despite this, many people are not sufficiently in control of these important financial assets, which are often scattered across multiple plans, forgotten about entirely or the paperwork has disappeared down the back of a sofa.’
HOW TO FIND A LOST PENSION
The first steps to finding a lost pension are digging out any old paperwork you might have or using the Government’s Pension Tracing Service. This is a free online database of contact details for old and new pension schemes – all you need to know is the name of your former employer, pension scheme or provider.
Once you have contact details you can get in touch with old providers and ask for an up-to-date pension statement to determine how much you have saved and where it is invested.
You’ll need to provide your name, address and national insurance number, as well as any previous addresses or names you have had.
KEEP SEPARATE OR CONSOLIDATE?
The next step is deciding what to do with the various pots. In some instances, transferring all of your pensions into the same pot is the best choice – it’s far easier to just keep track of one account, often cheaper and your gains may compound more quickly.
But, for some people, this will be a mistake. Kate Smith, head of pensions at investment group Aegon, says: ‘Pension consolidation won’t be right for everyone – there are merits to not keeping all your eggs in one basket and some older-style pensions will have valuable benefits which may be lost on transfer.’
It is vital to check the small print before you transfer your savings. Older pensions in particular may have valuable benefits, which you would lose if you were to move the money elsewhere. Other savings vehicles may charge punitive fees if you transfer your cash elsewhere, which could offset the benefits of doing so.
But if an old pension has high charges and poorly performing investments, it may still be worth suffering an exit fee if you think switching to a low-cost account and greater range of funds will boost your pot over the long-term.
Justin Modray, director at Candid Financial Advice, adds: ‘You’ll need to do a careful comparison to determine whether transferring elsewhere is worthwhile – compare the costs and investment choices of the current pension to a low cost self-invested personal pension. Ideally you want a sensible balance between having access to a decent selection of investments and cost.’
ADDING UP THE VALUE OF YOUR PENSIONS
If you do decide to consolidate your savings then each of your existing pension providers should give you a transfer value, which is the amount you will have after fees and charges.
Each of your pots likely invests in different funds and assets with varying strategies – if you are opening a SIPP (self-invested personal pension) to manage your pension investments yourself, check whether it offers access to the funds, investment trusts and shares you want to hold.
You can sell all of the investments in your pension and transfer the money as cash into the new account before reinvesting it.
A benefit of doing this is that there are typically no charges for cash transfers. However, there are trading charges for buying and selling the investments and your money will be out of the market while it is transferred, which can often take several weeks.
Alternatively, you can transfer investments ‘in-specie’, meaning you remain invested while your holdings are moved from the old account to the new.
While this means you don’t miss any time in the market, you won’t be able to trade while your investments are being transferred and some providers will charge for each holding that is being moved, which can add up.
If your new provider doesn’t have the fund you currently hold – it might be one that no longer exists – then it will have to be sold and the money transferred as cash.
Ms Smith adds: ‘Nowadays the vast majority of jobs come with a pension and, as people frequently change jobs, it’s all too easy to lose track of your pensions. But it’s very hard to plan for retirement without a full view of your savings.’ (HB)