This year, 13 October marks the UK’s National Pension Tracing Day. A great chance to find your lost pensions, the opportunity is also a timely one.
This is Money recently reported that around £37 billion is currently sitting in lost or unclaimed pension pots.
If you have had several jobs throughout your career, it is possible that you have schemes that you have forgotten about or lost contact with.
Now is a great time to find them, and once you have, be sure to consider the benefits of consolidating them into a single pot.
Keep reading to find out how to retrieve your lost plans. Plus, the pros and cons of consolidation.
Use the government’s pension tracing service to find your lost pots
A recent MoneyAge report found that more than a quarter of UK employees have three or more pension pots. This average could be set to slowly rise thanks to the introduction of auto-enrolment.
The average worker is likely to have 11 different jobs throughout their career and auto-enrolment means they could pay into a different pension with each one.
With 11 pots to manage and keep track of, the likelihood of losing track of them grows hugely.
Thankfully, you can find your lost pensions using the government’s pension tracing website. You’ll need to dig out the paperwork you hold, but if you can remember the employer you took the pension out with, or the scheme that provided it, the service should be able to find contact details for you.
Once you are in contact, gather all the information you can about each scheme and you’ll be in the best position to decide if consolidation is right for you.
3 benefits of pension consolidation
1. You’ll save yourself time and money
Consolidating all of your smaller pots into one scheme means that you will only have one provider to deal with.
That means one set of paperwork, one set of contact details, and one decision to make about your whole pot when the time comes to retire. Comparing options with one pot, rather than weighing up the pros and cons of multiple options across different pots shouldn’t limit your choice, but it could make the decision-making process much quicker and easier.
2. You could save yourself thousands in lower charges
While modern pension schemes are often low-cost, some older schemes can have large charges attached. In fact, the Telegraph recently reported that the charges in older schemes could be five times higher on average.
Once you have found your lost pensions and have the paperwork in front of you, it should be easy to isolate the schemes with the highest charges.
Transferring out of these into schemes with manageable fees attached could save you as much as £23,000 over 20 years, according to the Telegraph report.
(Note: Calculations assume a pension pot of £50,000 growing at 5% a year with charges of 0.4% and 1.2% applied.)
3. You’ll put yourself back in control of your retirement
Finding lost pensions and working through your consolidation options should help you to reengage with your retirement.
While seeking out the schemes with the lowest charges, you might also find that newer schemes give you much more control.
Older schemes can have a limited fund choice. Newer schemes though could offer multiple funds, possibly including ESG funds (those that focus on environmental, social and governance issues) that might better align with your values.
You might also find that newer schemes offer portals that allow you to manage your retirement online.
3 potential disadvantages to consolidation
1. There could be a charge to transfer
Schemes will often charge you to transfer out of them, into another scheme. Transfer charges will vary between providers so you might need to complete some simple calculations before you decide.
If your pot is small, a large transfer charge might outweigh the benefits of consolidation.
It’s worth remembering that different pension options exist for smaller pots with different tax treatments too. For example, a small pot payment (a lump sum payable on pension pots with a value below £10,000) doesn’t trigger the Money Purchase Annual Allowance.
We can help you to decide on the right option for you so be sure to get in touch before you decide.
2. You might lose valuable benefits
Check the paperwork attached to your old plans carefully to see if they include additional benefits that would be lost on transfer.
You might find a plan with guaranteed annuity rates (GAR), for example. This could offer rates above the current standard annuity rate but only if you take an annuity with your current provider on a specific basis.
Again, we can help you make sense of your policy documents and decide if consolidation would mean missing out on these valuable benefits.
3. You could pay more tax
Taking a single large pot in one go could have tax implications. This is because the pension payments you receive are taxed as income (aside from any tax-free cash entitlement) and therefore subject to Income Tax.
Taking a lump sum could push you into a higher tax bracket. This would mean a portion of your pension payment could become subject to tax at 40% or 45%, so it’s worth considering whether a series of smaller payments would be more tax-efficient.
Get in touch
Finding lost pensions is quick and easy and could mean you free up some of the £37 billion currently languishing in unclaimed funds. These pots could make a huge difference to the lifestyle you can live in retirement so use this National Pension Tracing Day to find them.
Once you have, consider consolidation, and speak to us to decide if it’s right for you. Contact us now to find out how our Chartered financial planners could help you.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
