Today’s workers are likely to have a string of jobs, accumulating pension pots as they go that are then easily forgotten.
There are many things we half-expect to lose – umbrellas, sunglasses and socks may immediately come to mind – but we don’t typically anticipate losing pension pots from previous jobs. However, insurer Aegon recently estimated that more than seven million people have misplaced one or more of their pension accounts. Similarly, wealth manager Tilney found that one in five people admit to having lost a pension, often because they failed to notify pension providers when they changed address.
Over the past two decades the nature of employment has departed radically from the days of ‘a job for life’. More people are self-employed, and most people have jobs with several different employers during their careers. Today, employees have an average of 11 jobs during their working life. This means they may have many workplace pension pots to keep track of, and as employment patterns continue to evolve, this trend is likely to continue.
People in their 20s and 30s have historically been unlikely to think about their retirement at all, as it seems a lifetime away. Today they are auto-enrolled in workplace pensions at an early stage, but given that we are in an era when frequent job moves are the norm, the risk of younger employees simply forgetting about or losing the details of pensions from past jobs is likely to increase – although the introduction of the pensions dashboard (described later) should help resolve that problem.
If you are a decade or two away from retirement, it is advisable to have a ‘mid-life MOT’ to review your financial situation. You could begin by considering all the jobs you’ve had and whether pension pots attached to them may have slipped off your radar.
If you think you may have lost track a pension, your first port of call should be the government’s official pension tracing service (www.gov.uk/ find-pension-contact-details). Here you can enter former employers’ details into an online database and be provided with the contact details of pension schemes you may have paid into. The service is free.
Be warned, however: tracking your pension may be tricky, as your previous employers may have been taken over or gone out of business. Moreover, many insurance companies have merged and some pension schemes have been switched to new providers.
The government’s tracing service usually gives you a contact address. When you contact the HR department or company secretary of an old employer, try and have your PAYE number, an old pay slip or your pension policy number to hand. Your employer should then be able to tell you which provider your pension is with. The provider will in turn be able to tell you how big your pension is, how it’s performing and how much it may cost you to move it.
If your old employer no longer exists, it becomes all the more important that you have some details on the pension scheme itself.
But what if you know your former employer but don’t have the scheme details? Kate Smith, head of pensions at Aegon, says: ‘Just before you reach your scheme retirement age, your scheme or provider should get in touch to set out your options. If they can’t find you, they will use a tracing service to try to connect you with your pension.’
Smith says employers need to make people aware that their ‘pension pots are part of their remuneration package’. But, while the government’s offi cial tracking service is a good place to start tracing a pension, people need to be on their guard. Smith explains: ‘Some tracking services are genuine and some aren’t. They could be scams. Some online services off er pension reviews that could involve tracking missing pension pots.’ The government’s service is the safest option.
Once you have tracked down all your pension pots, it may make sense to consolidate them in one place, but that’s not always the best option. It’s vital to consider the charges involved. In addition, some old-fashioned pension pots might have valuable features – such as a loyalty bonus or guaranteed annuity rate – that people need to be aware of. For example, says Smith, some pots may ‘provide “protected rights” for tax-free cash of more than 25 per cent or a protection that allows people to go above the lifetime allowance’. If the pension pot is large and there are protections involved, she recommends getting financial advice.
Fiona Tait, technical director at Intelligent Pensions, agrees that people must be careful not to give up valuable guarantees, such as a guarantee of a good annuity rate. It’s ‘not just the value of a pension that people should consider, but also whether extra benefits that come with it’, she says.
Another argument against consolidating is that by keeping your pots apart, you might benefit from the small-pots rule which affects pots worth less than £10,000. Smith says: ‘Taking a small lump sum (of up to £10,000) doesn’t trigger the money purchase annual allowance of £4,000. This is important for people who have started to access some of their pension savings after age 55 but want or need to continue to pay more than £4,000 a year into a pension. It’s a very complicated area, so advice is essential to avoid falling into tax traps.’
Those who do consolidate tend to bring their older pensions into their more recent workplace pension. Tait says: ‘Consolidation has considerable advantages; it certainly makes life simpler for people.’
Peter Bradshaw, a director at Selectapension, says: ‘Spreading risk across a number of pensions pots has benefits, providing they are regularly reviewed.’ However, he adds, consolidation may be helpful if ongoing charges can be reviewed and reduced. Moreover, the process of consolidation means ‘the underlying investments and asset allocation can be brought into line, making it easier to review and make adjustments to the investment mix’.
Phil Blows, director at pension robo-adviser Wealth Wizards, says: ‘As many pension providers digitise their offerings, it should become easier to track down old pensions.’ However, he warns that many older and smaller providers do not have the resources to make pension information available online. ‘These schemes are unlikely to digitise any time soon, so it is essential that members track down old pension schemes themselves.’
Keep on top of your pension line-up
Even better than tracking down a pension is not losing it in the first place. To avoid losing your pension, Smith recommends simple measures such as keeping your provider up to date when you move house or change your address. Gerard Frew, chartered financial planner and vice-president of International Pensions at Holborn Assets, says: ‘If you move out of the UK, let the trustees know and keep a copy of your UK national insurance number as well as a record of all your pension pots.’
There has been much discussion about how the whole process of keeping track of pensions might be made easier. Former pension minister Steve Webb has suggested that defined contribution pension pots should automatically be transferred to new employers. Meanwhile, his successor Ros Altmann has put forward the idea of a ‘lifetime pension’: a single pension account that an individual retains throughout their working life.
Eventually, the pension dashboard – which is set to launch in 2019 – should help resolve the problem of lost pensions. Once up and running, the dashboard will be a _digital portal where people can view a snapshot of all their pensions in one place. It will pave the way for people to view their projected retirement income, consolidate their different pension pots, compare pension providers, and choose how their money is invested.
Once you’ve found your pensions, it’s vital to review them on a regular basis. Currently, the amounts pension providers charge you and the information they provide vary considerably. That is why the Financial Conduct Authority has recently proposed that wake-up packs should be sent to customers from the age of 50, and then every five years after that. Under current rules, pension providers are only obliged to send scheme members a wake-up pack six months ahead of their chosen retirement date. These packs will now include a single-page summary – sometimes called a pensions passport – that will set out the expected pension and flag up specific retirement risks.
Such packs, particularly in conjunction with the pensions dashboard, should help pension savers and retirees stay on top of their pension planning.