The key to successful retirement planning is knowing how much income you’ll need when you finish work and making sure you save a large enough pension pot to provide it. But many of us are overlooking a vital part of our retirement planning – forgotten pension pots.
Research by Profile Pensions has found that 25% of people aged under 55 have lost track of at least one pension. At an average value of £23,000 those lost pensions could make a huge difference to your retirement planning. Locating those pensions could mean you can afford to retire two and a half years earlier.
"Saving enough for a comfortable retirement is probably the biggest financial challenge facing workers in the UK,” says Michael Angus, Wealth Planning Director at Sanlam. “It’s key to ensure you know where all your pension funds are to help give you as successful a retirement as possible.”
So, why are so many of us losing our pensions? The first issue is that we all have more pension pots than we used to. Gone are the days when you worked for the same company for 40 years and retired with a gold carriage clock. The average UK adult has 11 jobs in their lifetime, according to government figures. If you start a new pension each time that’s a lot of different pots to keep track of.
Then there is the issue of auto enrolment. While it means we are all saving more for retirement, many of us are doing so mindlessly. Our employer sets up the pension and we know little about it – many employees don’t even know who their pension provider is.
To make matters worse we are all changing address more often. Government statistics estimate that you will move house around eight times. Forget to notify all your different pension providers of your change of address and you will stop receiving your statements and documentation.
All this means the number of lost pensions is rising. The government estimates that, by 2050, there will be 50 million lost or dormant pension pots.
In order to have a clear picture of your retirement you need to know the value of your pension savings. With an average £23,000 currently sitting in each of those lost pensions – or a total of £37 billion – it is vital you check if you have a missing pension pot.
“The good news is finding your forgotten pensions is relatively simple”, says Angus. “Start off by contacting the Department for Work and Pensions (DWP)’s Pension Tracing Service.”
You will need details of all your employers and the dates when you worked for them. It can then provide you with the details of any pension provider or scheme associated with your employer when you worked there.
It isn’t just workplace pensions that can go astray. You may have also forgotten the details of a personal pension that you set up at some point in your working lifetime.
“If you are looking for a lost personal pension, ask the Pensions Advisory Service for help,” says Angus. “They will need as much information as possible, including any old paperwork you have. A financial adviser can help you “Saving enough for a comfortable retirement is probably the biggest financial challenge facing workers in the UK” gather together the information you need and help you hunt down lost pensions if you aren’t sure where to start.”
Once you have gathered the names and contact details for your old pension providers, you will need to get in touch with each of them to find out if they hold a pension in your name and, if so, the value of the pot. It is also worth asking them for details of any management charges you are paying, and would there be any charges if you wanted to transfer the pot. If you have a financial adviser, they may be able to get in touch with pension providers on your behalf.
Now you know where all your pension savings are, the next question is should you bring them all together into one pot? This could make it easier to keep track of your retirement savings and, potentially, reduce the charges you are paying if you have lots of pots. But, don’t assume it is the best plan. In some cases, you are better off leaving your retirement savings where they are.
For example, you could lose out on a valuable guaranteed annuity rate or additional tax-free lump sum entitlements above the standard 25%. If your pension dates from the 1990s it could come with a guaranteed annuity rate that was in line with rates back then when rates were far, far higher than they are today. In that scenario, moving your money would mean you were taking an axe to your retirement income.
5 steps to locating a lost pension
Contact the Pension Tracing Service. They can give you details of workplace pension schemes connected with your old employers.
Use the Pensions Advisory Service for help finding lost personal pensions.
Contact pension providers to see if you have a forgotten account with them.
Once you have found all of your pensions, speak to a financial adviser for help deciding whether to consolidate them.
Future proof your pension by making sure your employer and pension administrator know if you move home or change your name.
Keep your benefits
Ensure you fully understand the benefits of a pension and what you will lose if you leave. Also, check if there are any exit charges before you decide to consolidate your pension pots.
“Consolidating all your pensions can seem an attractive proposition and can bring peace of mind,” says Angus.
“However, it is essential that each plan is properly analysed by a qualified adviser to ensure transferring it is the right option and that valuable benefits aren’t being given up.”
Finally, once you have found all your pensions and brought them together, don’t lose them again. Make sure all your pension providers and your employer have the correct contact details for you. Then make sure you have a list of them and inform them if you move to a new house or your details change. Ensuring they have up-to-date details for you means they can stay in touch and it will minimise the risk of you losing your pension.
“While you can do all of this yourself, a financial adviser will be able to guide you through each step to help get your pension affairs in order,” says Angus.