According to a recent report from This is Money, around £50 billion is currently languishing unclaimed in UK accounts. This is held between around 20 million people, with the majority of the money – around £37 billion – sitting in pension pots.
If you have a “lost” pension, you are not alone. Where once the traditional “job for life” saw many workers retiring with just one pension plan, this is no longer the case. In fact, MoneyAge confirms that more than a quarter of people now retire with three or more pension pots.
This year’s National Pension Tracing Day falls on 13 October and could be a great time for you to dig out your retirement paperwork and track down your forgotten pensions.
Keep reading to find out how to go about it, and why you should.
Tracing your lost pensions
If you have had more than one employer during your career, you likely have more than one pension plan. This is especially true since the introduction of auto-enrolment in 2012, which has seen employees offered a workplace pension with each new employer.
Having multiple pensions could mean that you have lost track of some of the older ones you may have.
The first thing to do if you think you might have a forgotten pension is to make a list of your former employers and find the paperwork attached to each.
If you do not have contact details for a particular scheme, you can use the government’s pension tracing website to help you find your lost pensions.
Simply enter the details you remember of your former employer or personal pension provider and let the system do the rest.
Consolidating your pensions could save you thousands
With £37 billion sitting in unclaimed pension pots, finding your forgotten pensions could be financially beneficial. Beyond the money sat in the pot itself, there are other financial and non-financial benefits to finding – and then consolidating – the pots you hold. There could be downsides too.
Here are three factors to consider:
1. Consolidating means cutting down on your pension paperwork
Using this year’s Pension Tracing Day to track down and consolidate your lost pensions could save you time and money over the longer term.
With only one scheme provider to deal with, you will have just one set of paperwork to keep track of and one set of contact details to remember.
When the time comes to take your pension, you can receive one pension quote for the whole amount. This means you can very quickly compare your options and work out the best choice for you.
2. Your older plans often have high charges or little flexibility
Older pension schemes can have higher charges compared to current low-cost alternatives. Once you find your forgotten pensions be sure to check how much you are being charged.
A recent report published in the Telegraph found that you could be paying an average of five times too much for your older pension. The report went on to say that reducing your charges, by transferring or consolidating into a newer scheme, could save you £23,000 over 20 years.
This is based on a pension pot of just £50,000 growing at 5% a year with charges of 0.4% and 1.2% applied, compared to today’s lower-cost alternatives.
You might also find that newer schemes offer a greater fund choice, possibly with the option to align your investments with your values on issues such as sustainability and the climate crisis.
Modern schemes might also offer online portals that allow you greater control over your money.
3. There could be disadvantages to consolidation so always seek advice
You might pay more tax
There are tax implications to finding and consolidating your pensions. Any income you take beyond your tax-free cash entitlement (usually 25% of your pot’s value) is subject to Income Tax.
Taking a larger pot in one go might push you into a higher tax bracket. This could result in you being taxed at 40% or even 45% on a portion of it.
Factor in transfer charges
You might need to pay a transfer charge to move your pensions into one pot.
Weigh up the size of the charge against the potential benefits of the transfer in each case. We can help with that, so be sure to get in touch before you decide.
Older plans might have additional benefits
Some older plans might have additional benefits attached. These could include guaranteed annuity rates (GAR), which are often considerably higher than the standard rate. Some plans might include a guaranteed minimum pension (GMP) amount or favourable death benefits.
If you have a pension with guaranteed benefits these will no longer be available if you transfer out. For example, your pension may provide protected tax-free cash (TFC) or a protected lower pension age that you could lose by transferring out of the scheme.
You will need to weigh the cost of these benefits against the comparative gains of transferring.
Once you find your forgotten pensions be sure to understand exactly what they offer.
Get in touch
With multiple jobs throughout a career now the norm, you could find yourself with multiple small pension pots spread across various providers. Finding these pots, whatever their size, could make a huge difference to your retirement plans, including when you retire and the lifestyle you can afford to live.
For guidance on whether consolidation could be the right option for you, email firstname.lastname@example.org or call us on 01275 462 469.
A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change. You should seek advice to understand your options at retirement