Have you got a lost pension?
The days of a job for life are long gone. Twenty-first-century careers typically involve a whole series of employers, and indeed the Department for Work and Pensions (DWP) estimates people on average now hold down 11 jobs during their working life.
So it's hardly surprising we are struggling to keep tabs on the pension pots we accrue along the way. In total, around five million people are believed to have lost or forgotten pensions totalling an estimated £3 billion, according to the government's Pension Tracing Service.
Recent research from the charity Age UK reveals that almost a quarter of working adults have lost track of at least one pension. Younger people are most at risk: almost 40% of those aged 25 to 34 have lost a pension.
How do so many pensions get lost?
The trend towards multiple workplace pensions is one of the main causes of the emerging pension 'black hole', says Age UK. The average person aged 65 has worked for around six employers during their career - yet a quarter of those aged 25 to 34 have already had six employers, with a further 35 years of work still ahead of them.
Already, younger people are accumulating pension pots at a much faster rate than older people, with more than a fifth of those under 25 already owning three pensions. The DWP estimates that by 2050 there will be around 50 million 'dormant' pension pots in the UK from former jobs - two thirds of them worth less than £10,000.
How do pensions get lost? Almost half of us just forget about them when we move jobs, and cannot remember the important details, according to the Age UK survey.
But there are other causes: former employees may lose their paperwork, or move house and forget to notify the pension provider of their new address; employers may change name or close down altogether; or the insurance provider may itself be taken over and rebranded.
In addition, the ongoing introduction of automatic pension enrolment for employees could also mean rising numbers of dormant pensions with ex-employers, including a proportion of lost or forgotten pots.
However, that problem should be helped to some extent by the government's plans to introduce the automatic transfer of pension pots worth less than £10,000 when people move jobs. By consolidating past pensions within the current employer's pension scheme, it's hoped employees will be better able to keep track of their pension savings and plan for retirement.
The DWP says automatic pension transfers will reduce the proportion of people reaching retirement with five or more dormant pension pots from the current level of 25% to just one in 30. But it's not all plain sailing.
"This is great news for savers," says Peter McDonald, a partner in PricewaterhouseCooper's pensions team. "The new system will go some way to reducing the sheer amount of money that is left unclaimed in pension schemes. But it's yet another admin headache for employers, and could cause many to strip back the workplace pensions they offer."
Jane Vass, head of public policy at Age UK, sees the initiative as potentially a good thing but says more needs to be done to safeguard consumers: "We do have concerns that the proposed automatic transfer system leaves too much room for consumers potentially to lose out if their pot is transferred automatically from a good scheme to one with inferior terms and conditions."
Age UK wants the government to set clear minimum standards on charges, good governance, high-quality information, and appropriate investment choices.
Of course, many people also have dormant pensions that are too big to be covered by the new proposals. So what should you do if you're in that camp? First, make sure you keep track of your pension by saving all the paperwork you're sent and notifying the pension provider if your address changes.
Bringing all your old pensions together into a single pension scheme - a process known as consolidation - generally also makes sense, as it minimises the paperwork and allows you to see exactly how much you have saved for retirement.
"The only caveat to combining pensions would be if existing pension schemes have a guaranteed annuity rate," agrees Carl Lamb, managing director of IFA Almary Green. In this scenario, it could potentially be a bad move to extract pension money from an old fund that guarantees an annuity rate far superior to that available on the open market today. Lamb recommends getting your pensions reviewed beforehand to make sure you don't overlook existing agreements.
Find a forgotten pension
The first port of call should be your previous employer (if it still exists), who may be able to give you details of the pension provider, and possibly your plan. If you draw a blank, contact the free Pension Tracing Service.
This service uses a database with information on more than 200,000 pension schemes. Where it can help (in about 20% of cases), it will provide details of the scheme administrator and you can then contact that company direct. Typically, that results in a recovered pension worth an extra £16 a week or a lump sum of around £1,900 and around 7% receive a lump sum of more than £20,000.
When you retire, even if you haven't consolidated all your pensions into a single fund, it's worth bringing them together to buy an annuity. "A single annuity will normally provide a better return for your money than a number of small annuities," says Malcolm McLean, a consultant with actuarial firm Barnett Waddingham.
If the whole lot amounts to less than £18,000, however, you do have the option of cashing it in as a 'trivial pension' rather than buying an annuity. If you're at all unsure as to the best course of action, do take professional advice, as this will affect your income for the rest of your life.
Tracing a lost pension
- Collect as much information as possible about your previous employer, including the name, type of business, previous addresses and pension scheme dates.
- Search for any paperwork you may have received with the pension.
- Try to remember if it was a workplace or personal pension.
- Contact the Pension Tracing Service on 0845 600 2537 or gov.uk/find-lost-pension.
- You may also get advice from the Pensions Advisory Service helpline on 0845 601 2923 or pensionsadvisoryservice.org.uk.
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.