Retirement planning can be a minefield - but some simple steps can help
Pensions are a mystery to many of us if you are to believe the latest research which claims nearly 70% of us do not know what we have in our pension funds.
A new study shows we have lost touch with our money with 10% of us having no records of corporate pensions held with previous employers and a further 32% unsure of where relevant pension paperwork is located. Over 30% of us have pension pots with two or more employers, with a further 5% unsure of how many pots we have.
Worringly, the Department for Work and Pensions estimates there are currently in excess of 1 million small pension pots in the current system.
This means that currently up to £200million could be lost in future retirement income based on the study by Friends Life.
Women are more apathetic when it comes to pensions and are less likely to know how much their pension pot is worth, with 72% unaware of the collective value compared to 64% of men.
Women are less likely to keep track of pensions documentation, with over 11% having no record of all their pensions compared to 9% of men.
Worse still, over 40% believe they are not paying any charges on their pensions. A further 26% say it doesn't cost them anything to run their pension as their company pays.
Running a pension scheme does cost money but the charges aren’t always easy to spot. The provider responsible for where your money is invested does take a fee.
There’s a big focus on the cost of pensions at the moment. While newer pensions are considerably cheaper, these low-cost schemes will be simpler, offering more limited and more automated funds.
Savers wanting a more hands-on approach or a more active fund manager are likely to see higher charges. But these would not normally reach 4% as some much older-style pension schemes are charging.
What do I need to do?
First of all get all your documents in order. Even if you have a financial adviser working for you it’s important for you to engage with your retirement planning yourself. Make sure you have a contact for each scheme and if there’s any missing get a pension statement.
The value of your pension fund is of course relevant but not guaranteed given that it will almost certainly be linked to stock market performance. It could rise - or fall.
If you think you may be missing some money, check with the Unclaimed Assets Register. It claims there is £400m worth of mislaid pensions and life assurance contracts. The vast amount that goes unclaimed in pensions each year is mostly down to relatively small pensions that have been forgotten, from previous employers who may no longer be in business or personal pensions which were only been paid into for a short period of time.
Check the register at www.uar.co.uk
When you find your scheme details it won’t hurt to check the charges you’re paying. Newer pensions are considerably cheaper. The ABI said that the average annual management charge for existing schemes is 0.77% - some are as low as 0.3%. But older schemes are far more expensive. However, some do come with guaranteed annuity rates which could be worth their weight in gold when you come to convert your pension fund to an income when you retire. Annuity rates are plummeting so it’s worth holding onto any guarantees. If you find your charges seem high, then it could be worth moving your money. But this is something you absolutely must discuss with an independent financial adviser.
Making sure you are aware of the pensions you have, the amount you and your employer are paying, what charges there are and how much each pension plan is worth is essential for retirement planning.
Checklist - pension holders should ensure that they:
1) Track down all pension pots from previous employers
2) Start and maintain a list of all policy details from previous corporate pensions
3) Keep pension providers updated with current contact details
4) Use the government's Pension Tracing Service if you are struggling to track down previous policies
5) Consider seeking advice on the merits of consolidating small pots under one provider for ease of management and planning.