By Peter Savage, Fairstone Chartered Financial Planner
NEARLY TWO THIRDS OF UK SAVERS HAVE MORE THAN ONE PENSION AND CHANGING WORK PATTERNS MEAN THAT THE NUMBER OF PEOPLE WITH MULTIPLE PENSIONS POTS WILL INCREASE.
People typically lose track of their pensions when changing jobs or moving home and the Government predicts that there could be as many as 50 million dormant and lost pensions by 2050. Fairstone Chartered Financial Planner Peter Savage looks at so called lost pensions.
In my 20-year career, I have been a member of three company pension schemes and I have also had two private arrangements. Given that the employment landscape has evolved significantly over the last few decades and changing jobs multiple times before retirement is now very much the norm, I don’t think this is unusual. The days of a job for life have certainly passed. As a financial planner, I have been lucky in that I have been able to track and consolidate my pension when appropriate. However, figures recently released on the back of research carried out by the Association of British Insurers, show there is an estimated £19.4 billion unclaimed sitting in around 1.6 million pension pots – the equivalent of nearly £13,000 per pot. Most people I know probably wouldn’t forget having £13,000 lying in a bank account – I still remember that I have a student account with Bank of Scotland with 73 pence in it. So, why do some people forget about their pension built up with an ex employer? Usually this can occur if an individual moves home and doesn’t update their previous pension providers. This problem is estimated to get bigger over the years with the introduction of auto-enrolment.
What should an individual do if they think they may have an old pension lying around somewhere?
Let’s examine a case study of Sheryl. Sheryl is 55 and married with two financially independent children. She has worked for various employers over the last 35 years. She currently has a pension through her current employer valued at £150,000, but doesn’t know how to start to investigate to see if she has any ‘lost pensions’. If she doesn’t have any idea of the previous pension providers, then she should start by contacting the Pension Tracing Service. This is a free service which searches a database of more than 200,000 workplaces and personal pension schemes to try to find the contact details that an individual may need. Moving on, Sheryl has managed to trace two pensions worth £23,000 and £7,000. This has increased her pension funds by 20%. So, should she consolidate or keep them as they are?
Bringing together all of Sheryl’s different pension pots could provide a clearer picture of her retirement asset and enable her to make a more informed choice about her retirement. She could invest
the funds with the same strategy under one plan and potentially benefit from lower charges on newer pension contacts or improved investment performance. All of the current plans may not allow the potential flexibility Sheryl may want.
However, a pension consolidation is not always appropriate. An individual may have a lost defined benefit plan and having a guaranteed income may suit the individual better. A defined contribution plan may also have valuable benefits such as a guaranteed annuity rate which could provide a high level of guaranteed income which would be lost if switched to
another plan. Because there are both advantages and disadvantages associated with consolidating pension pots, it can be a complex decision to work out. This is where Sheryl could benefit from taking advice from a financial planner who can listen to what her needs and objectives are and create a proposal using the pensions plans in the most appropriate and advantageous way. Hopefully that way Sheryl will avoid adding to the estimated 1.6 million unclaimed pension pots.
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 The Lost Pensions Survey includes data from 12 large insurers, covering around half of the defined contribution pensions market.
 The Association of British Insurers is the voice of the UK’s world-leading insurance and long-term savings industry.
TRANSFERRING OUT OF A FINAL SALARY SCHEME IS UNLIKELY TO BE IN THE BEST INTERESTS OF MOST PEOPLE. A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.
PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY 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 IN THE FUTURE.
ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE. ACCESSING PENSION BENEFITS EARLY MAY IMPACT ON LEVELS OF RETIREMENT INCOME AND YOUR ENTITLEMENT TO CERTAIN MEANS TESTED BENEFITS AND IS NOT SUITABLE FOR EVERYONE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT