Workers build their retirement savings over a career which can stretch for 40 years or more, and a lot can go wrong along the way.
The typical employee ends up with eight different pension plans over their career, and it’s all too easy to lose the paperwork.
It can also be costly, as lost plans could be worth a lot more than you think.
Workers given small company pension schemes in their early 20s may be shocked to discover how much they have grown over the years and decades.
As the cost-of-living crisis rages unchecked, they need to track that money down.
Two in five savers lose track of at least some of their company and personal pensions, as well as tax-free Isas and savings accounts, according to new research from wealth manager Netwealth.
The average loss is a substantial £30,000, said Netwealth founder Charlotte Ransom. “That kind of money could have a transformative impact for its rightful owners.”
Pulling together all of your pensions and other savings can give you a much clearer idea of where you stand financially, Ransom added. “It’s also much easier to do vital retirement and inheritance planning.”
To trace a lost or forgotten pension, first contact your former employer. If you can’t find its details, contact the government’s Pensions Tracing Service or visit the free MoneyHelper site.
It helps to gather relevant information such as your previous employer’s name or pension plan name, the type of trade they were in, an address and when you were enrolled on the scheme.
A word of warning: if you key pension tracing service into Google it will bring up a host of private companies that will charge for your something you can get for free. Try MoneyHelper first.
Savers with multiple pensions should then consider step two, which is to consolidate them into a single pot, said Pete Hykin, chief executive at private pension provider Penfold. “It makes them easier to keep tabs on by reducing the number of accounts you need to monitor.”
Consolidating your pensions puts you in charge of where your money is invested, rather than simply relying on your provider’s default one-size-fits-all strategy, Hykin said. “This can help you create a more coherent investment plan in line with your preferred risk level, growth potential and time horizon.”
Having a single pension pot also makes it simpler to access your savings when approaching retirement age, whether through drawdown or an annuity, he added.
There are dangers to consolidating. Some pension plans may offer unique benefits or guarantees that would be lost if you transfer out.
If you have a defined benefit pension plan that offers valuable benefits, such as guaranteed lifetime income or survivor benefits, consolidating that may not be wise, Hykin said.
Some pre-2006 company pensions allow members to take more than the maximum 25 percent tax-free cash entitlement that applies to most pensions.
Older-style pensions may also have high exit fees, which can wipe out the benefits of consolidation, so again, check.
Remember there is no guarantee that your consolidated pensions will perform better than your old ones.
READ MORE: Britons could boost pension by £130,000 by giving it ‘a little love’
Hykin said pension consolidation is a personal decision. Whether it’s right for you will depend on factors such as the number of pension policies you have, where the money is, how high the fees are and performance.
The third and final step is to take control over how and where your money is invested.
Pension consolidation can cut management fees and potentially save a small fortune in charges, said Damien Fahy, founder of website MoneyToTheMasses.com.
A popular option for DIY savers who are happy to manage their underlying pension investments is to set up a self-invested personal pension (SIPP).
These allow you to invest in a choice of thousands of shares or investment funds and are offered by providers such as AJ Bell, Bestinvest, Charles Stanley Direct, Fidelity, Halifax, Hargreaves Lansdown, Interactive Investor and Vanguard.
When comparing, remember to include monthly or annual platform fees, trading charges, underlying investment fund fees and potential exit fees.
Fahy names Fidelity, Hargreaves Lansdown and Vanguard as among the best value Sipp platforms.
Fidelity and Hargreaves offer a full choice of thousands of shares and funds, while Vanguard’s platform is restricted to its popular range of index-tracking exchange rated funds (ETFs).
Website CompareThePlatform.com could help you decide which charging structure works best. Or consider paying an independent financial advice to guide your investment choices.
Pension consolidation isn’t for everybody. But for many, following these three steps could lead to a richer retirement.
