At some point you may have wondered ‘whatever happened to that old workplace pension of mine?’, prompting you to rifle through that dreaded drawer of paper or lift the lid off that one dusty shoebox filled with old statements, council tax bills and the occasional rogue takeaway leaflet.
You may have seen something on the news about pensions or have been daydreaming about that future cruise around the Caribbean and had the sudden impulse to check the value of your old pensions. Whatever the reason, you may ask, ‘is there not a better way to keep track of my old pensions?’
With the introduction of auto-enrolment and the increasing trend of workers shifting from the ‘job for life’ mentality in favour of more frequent career changes, more and more people find themselves with old workplace pension statements that are discarded and forgotten about.
Shockingly, the Association of British Insurers (ABI) has released figures that estimate the number of lost workplace pensions is 1.6 million pots, totalling £19.4 billion in unclaimed wealth!
To mark this year’s Pension Awareness campaign, this insight provides you with five points you need to be aware of when it comes to your pesky old pensions.
Not only that, but this insight will also offer a solution to the problem of keeping track of and reviewing your old pensions.
5 points to be aware of when it comes to your old workplace/private pensions
Be aware of what exactly your pension is invested in
If you have ever glanced at your pension statement wondering why it is written in Klingon, it may be that you are struggling to decipher the name of the fund your pension is invested in. Quite commonly (and rather unhelpfully), providers abbreviate the name of funds on statements, which can make it quite difficult to find further information about the fund your pension is invested in.
Even if can read Klingon and you overcome the first hurdle of identifying the fund, it is then important to understand what the fund is made up of and how the fund is performing against a suitable benchmark.
Be aware of what risk your pension is invested at
Following on from identifying how the pension is invested, it is also important to understand the risk of your pension investments.
Each fund can vary drastically when it comes to risk, and as a general rule the higher the investment risk, the potential for greater returns over the long term. However, this is not guaranteed, and higher investment risk can also lead to greater short-term losses.
It is important to assess the risk of your pension in relation to your investment timeframe. For instance, if you are 30 years away from retirement, you may want to take on a higher level of risk, as the longer timeframe of investment will generally smooth out short-term market fluctuations. Therefore, it may not be appropriate to be invested in a low-risk fund if you have many years until your intended retirement age.
Conversely, if you are close to retirement age, you may not want to be invested in a high-risk fund, as any short-term market fluctuations may affect the value of your pension when you come to retire. It may therefore be more appropriate to take a lower attitude to risk when retirement is imminent.
Please note that the above examples are just generalisations and the attitude to risk which you take with your pension should consider factors other than investment timeframes, such as your own investment experience and ability to deal with market fluctuations.
Be aware of how much your pensions cost
Many people switch bank accounts and utility providers in order to save money on fees, and a pension should be viewed in the same way. Costs can vary dramatically from provider to provider, and it is important that you understand the fees associated with your pension.
Although workplace pensions tend to be cheaper, there are other private pensions which can have high costs compared to other providers which can offer the same if not better services and fund offerings.
There is often a product or provider charge for your pension. In addition to this, there may be ongoing administration fees, or fees to switch funds within the pension. On top of that, the investments themselves held within the pension will have an Ongoing Charge Figure (OCF).
It is, therefore, important to understand the total charges applicable to your pension in comparison to other pension providers.
Be aware of the options available at retirement
Not all pensions were created equally, and some pensions have a greater variety of options when it comes to how you want to take your retirement benefits.
Particularly with older pensions, you may be limited to how you draw your pension at retirement, such as only having the option to purchase an annuity (which provides a guaranteed income for life).
Should you be close to retirement then it would be worth understanding the retirement options available within your plan.
Some people would prefer more flexible retirement options as available via Flexi Access Drawdown (which allows you to leave your pension invested and ‘draw down’ funds as and when needed).
Therefore, it is important to understand the retirement options available within your plan and how these meet your retirement objectives.
Be aware of any special benefits or guarantees applicable to your pension
Some pensions, particularly older style pensions, have certain benefits attached to them such as guaranteed annuity rates or protected tax-free cash (which may provide a tax-free lump sum in excess of the standard 25%) which means that it is important to understand any special benefit that is applicable to your pension plan.
Guarantees can be lost on transfer, so it is therefore vital to understand any guarantees that would be lost if you were looking to consolidate your pension arrangements.
How to keep track of your old pensions
One way of keeping up to date with your old pensions is to speak to one of our financial advisers who can review your existing arrangements.
A review of your pension arrangements will generally include:
- A discussion of your retirement plans and objectives
- How your current pensions are invested.
- What risk level your current pensions are invested at and if they are in line with your attitude to risk and objectives
- What charges are applicable to your pensions and if there are more cost-effective plans available
- What retirement options do your current pensions offer
- If there are any special benefits or guarantees applicable to your pensions.
Should it be appropriate for your pension arrangements, our financial advisers can offer advice on consolidating all of your old pensions into a single plan, be that one of your existing arrangements or a new one. You can forget about the dusty shoe box and have peace of mind that your pensions would now be simpler to understand, more visible and potentially more cost-effective.
There are, however, circumstances that consolidating your pension would not be appropriate, for example where one pension has special benefits that would be lost on transfer (such as a guaranteed annuity rate).
This article should not be construed as a personalised recommendation. The most suitable solution for you will depend on your own personal circumstances. No action should be taken without seeking further formal advice.
MHA Moore and Smalley is the trading name of Moore and Smalley LLP. Moore and Smalley LLP is regulated by the Financial Conduct Authority, FCA registration number 448716.
