Savers lose up to 75% of their pensions in little-known fees charged by investment managers, says a report by pension fund manager David Pitt-Watson and the Royal Society for the Encouragement of Arts, Manufactures and Commerce. So UK private pensions pay out, on average, half the retirement income of equivalent European schemes. As Holly Watt says in The Daily Telegraph, such “hidden costs are blighting the retirement plans of millions”. But you can help to protect your pension pot by tracking down every entitlement you’re owed.
On average, we Brits have 11 jobs in our working lives. No wonder that over a third of UK employees reckon they’ve lost control of company pensions built up with previous employers, says a recent Fidelity survey. Indeed, some people completely lose track of their pension entitlements from former workplaces. So what should you do about locating a previous work pension?
If possible, try to get in touch with your former employer. But if you can’t, don’t panic. The Pension Tracing Service run by the Department of Work and Pensions has information on over 200,000 pension plans. Even better, it’s free to use. More than 350,000 people have used this service since it was set up in 2005. And 20% of them have found lost pensions that have given them an average £832 a year extra. Not bad for a few minutes work.
So, you’ve unearthed a retirement entitlement from several jobs back. What next? That depends on the type of pension you’ve found. If it’s a ‘defined benefit’ (DB) plan, where the ultimate payout is linked to the number of years you worked, it may pay to leave it alone. At least seek professional advice before transferring it anywhere else.
If you’ve just dug up one, or more, old ‘defined contribution’ (DC) schemes, where what you get back depends on what you and your then employer have paid in, it may be more convenient to consolidate them into a single Sipp (self-invested pension plan). To see how these work, see the MoneyWeek financial glossary. This would give you easier access and control over your own investment decisions with the taxman’s approval. You’ll also be able to keep a closer eye on fees.
Among the cheapest Sipp deals is the Hargreaves Lansdown Vantage (0117-980 9926). It doesn’t charge for set-up, transfers in from other pension plans or contributions. And often there’s no annual management fee. An alternative is Sippdeal (0845-5432 600), which is also free to set up and transfer into.