A fully flexible way to invest
3 minute read
We explore why tracing old pensions can boost retirement plans.
The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek professional independent advice.
Please bear in mind that tax and pensions laws can change and that their effects on you will depend on your individual circumstances. We don’t offer personal advice.
Losing track of a pension is perhaps more of a common occurrence than you might imagine.
Over the last four years the number of lost pension pots in the UK has risen from 1.6 million to 2.8 million with an estimated collective value of £26.6 billion - up from £19.4 billion in 2018.1
It’s easy to become separated from some of the schemes you’ve paid into if you move jobs several times. It is estimated that people have an average of 11 jobs during their working lives,2 which makes it no surprise schemes are sometimes forgotten about.
However, the figures also cover private pensions. As well as switching jobs, pensions often get mislaid when people fail to tell their provider when they move house.
There may well be pensions out there that you started, stopped paying into, and forgot about.
Rounding up every last penny you’ve saved is time well spent as you’ll gain a clearer picture of your finances when it comes to retirement planning. It can also give your overall savings a very welcome boost.
The Government’s free Pension Tracing Service can help you can track down old pension plans. You will need the name of your old employer or pension provider to go through the tracing process which consists of a series of questions. It can then search a database of more than 200,000 workplace and personal pension schemes to try to find the contact details you need to.
Visit www.gov.uk/find-pension-contact-details or call 0800 731 0193 for more information.
Once reunited with your pensions, it’s time to weigh up whether your money is working hard enough – or if it’s better off elsewhere. Some people decide to combine all their pension pots into one so they can keep track of just one scheme rather than a string of providers.
But it’s not just about logistics. It can make financial sense too. Some older style pension schemes might only offer access to a limited range of funds for you to invest your pension cash in. The same goes for workplace pensions. Auto-enrolment schemes usually have a panel of investments to choose from, for example.
When considering a new home for your money it’s important to choose the right pension. Should you choose to consolidate your pensions into a self-invested personal pension (SIPP) then you would gain access to thousands of investment choices. SIPPs typically enable you to invest in shares, funds, Exchange Traded Funds (ETFs) and more, allowing you to build the portfolio that suits you.
Another potential benefit of SIPPs is that they can help you keep on top of costs, especially if you invest with fewer providers. Some older investments can carry higher costs than some of the options now available. With less money being eaten up in fees, there will be more available for you to keep and invest.
When the time comes to retire, there will likely be a more flexible range of options with a SIPP than might be available through some outdated pension schemes.
Make sure you do your homework on any SIPP you choose. Barclays Smart Investor won Best SIPP Provider 2022 at the Shares Awards.
Moving your pensions into one place might not be right for everyone. It’s vital you check you’re not giving up any valuable guarantees or benefits included in an existing pension scheme.
Sometimes they come with enhanced tax-free cash sums (where you can take more than the standard 25%), a protected pension age (which allows you to take the pension at an early age), as well as bonuses. Some come with generous guaranteed annuity rates and even life cover or critical illness insurance.
If you are in a final salary pension scheme, also known as a defined benefit pension, it’s not usually sensible to transfer out. This is because these schemes usually come with a guaranteed income for life and inflation protection, as pay outs will generally rise with the cost of living. Final salary schemes might also pay out to a surviving widow or widower.
As we don’t provide any financial or tax advice, it’s important to do your homework and consider how switching or consolidating pensions affects your financial and tax position. If you’re unsure, please seek independent advice tailored to your individual circumstances.
The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.
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