SAVERS with money in old pension pots from previous jobs risk losing thousands of pounds in rip-off charges.
So-called “zombie” pension funds are feeding off the savings of workers who put money away years ago.
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These old-style schemes are closed to new joiners, but continue to drain cash from their members through huge management fees.
Laura Purkess explains how to move your savings to newer low-cost plans and boost your retirement pot by thousands . . .
Are you feeding zombies?
IF you’ve got money sitting in an old work pension from years ago, or maybe have several pots from different jobs — zombie fund charges could be eating away at your savings.
Modern workplace pensions typically charge between 0.2 per cent and 0.4 per cent a year for managing your money, says financial advice firm Quilter.
That amounts to between £2 and £4 for every £1,000 you have in savings.
But before 2015, when new rules came in capping charges at 0.75 per cent for new schemes and new savers, fees were often much higher.
It’s common for savers who have old workplace pensions to be paying up to 1.5 per cent, Quilter said.
But in the worst cases — for schemes dating back to the 1980s and 1990s — fees can be as much as 2.5 per cent.
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That means that you’d pay £25 a year for every £1,000 in savings.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, says: “High charges from older pensions gnaw away at your pension value and over time they can make a big dent in your pot.
“Moving all your pensions into one pot can slash the fees you pay and mean you retire with a much larger sum saved.
“However, it’s vital you check that you aren’t losing out on valuable benefits by doing so and seek advice if necessary.”
How to switch?
PUTTING all your pension pots into one low-cost scheme can save thousands.
Move a £10,000 pot from one of the priciest schemes to the cheapest and after 20 years you could be almost £9,000 better off in retirement — without paying in another penny.
That’s according to calculations by advice firm Candid Money assuming five per cent annual growth.
Your pot would be worth £25,300 instead of £16,400 if you’d kept it where it was.
Move a £50,000 pot to a cheap scheme and you would be £45,000 better off over the same time-frame.
Mary Green, an independent financial adviser at Rosewood Financial Planning, says: “Not many people have a job for life these days and so they tend to accumulate old pensions, which don’t necessarily add up to much on their own.”
The first step is to track all your pensions down using any paperwork you can find and ask your provider how much you have saved and what charges you’re paying, she adds.
Tom Selby, head of retirement policy at AJ Bell, says: “You could then move all your pension savings to the scheme with the lowest charges.
“If you don’t already have a new pension to transfer older ones to, you can set one up online in a matter of minutes.”
You can compare different costs using a calculator, such as on website Candid Money.
Ask your employer if it offers any free pension guidance.
Or you could find an independent financial adviser at Unbiased.co.uk — but you’ll have to pay a fee.
Mr Selby adds: “If you do decide to switch, the new provider you’ve chosen should be able to do most of the legwork.”
If you have lost the details of your pension schemes, you can ring your old employers’ HR department.
The Government has a website that helps you track down your details for your pension provider.
Visit: gov.uk/find-pension-contact-details or call 0800 731 0193.
When to leave it put
YOU shouldn’t combine your pensions if you have any specific benefits attached to your pension pots, experts warn.
These may be called “enhanced”, “safeguarded” or “guaranteed” pensions and could be lost if you leave the scheme.
For example, your scheme may offer a guaranteed income when you retire, or it may have a “protected retirement age”, which means you can access your pot before the normal minimum pension age.
Your existing provider should be able to tell you if you have any of these perks.
Ms Green said: “You should also weigh up your savings with what you might have to pay in exit fees for leaving the scheme.”
‘Kerry should merge pots to save £6,000’
BEFORE Kerry Hussain launched her online art shop Art For The Soul, she worked several jobs in the media, during which time she paid into four different pension pots.
Advice firm Quilter looked at her paperwork and found £20,297 split between four pots, and annual charges on these ranged from 0.3 to 0.95 per cent.
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Its advisers calculated that if Kerry, 46, from London, moved all her pension pots to the scheme with the lowest charge, she would have £70,727 after 20 years, based on five per cent annual growth.
If she kept them all where they were, she would have just £64,775.
Kerry says: “I’m shocked that fees could be eating into my pension by so much. This has definitely motivated me to take action.”
Be aware of July’s key finance changes
JULY is set to be a key month for your finances as a host of money changes take place.
Yesterday the new gas and electricity price cap came into force, bringing typical annual bills down by £426 a year.
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But it is not the only change that you need to note.
James Flanders explains the five others in the months ahead, which you need to make note of . . .
- Disability Cost Of Living Payment hits accounts: More than six million people are eligible for the £150 support package. Many have already received it – but others will see payments hit their bank accounts by Tuesday. To qualify, you must have been already receiving another disability benefit, as of April – such as the Disability Living Allowance, Personal Independence Payment or Attendance Allowance. If you were awarded a qualifying benefit at a later date, you will still get the £150 automatically, but later.
- More claimants to be moved to Universal Credit: This month will see thousands of claimants on older-style “legacy benefits” such as tax credits moved over to Universal Credit. Millions will be transferred by the end of next year. If you receive a notice giving you a deadline to move it’s important to do so or you risk losing your benefits. In most cases, individuals will be better off moving on to Universal Credit. But 300,000 could be worse off and should not move until they are given a deadline. Calculators on entitledto.co.uk and MoneySavingExpert.com can help you work out whether you would get more or less than you currently receive by moving to UC.
- Deadline to renew tax credits: If you still receive tax credits, you have until July 31 to check the information in your renewal pack is correct and make sure you get the right amount. Contact HMRC as soon as possible if there are any changes to your situation that could affect your claim.
- Swap or use non-barcode stamps: Use up old-style stamps without barcodes by July 31. If you use them after this date the person receiving your post will be hit with an extra charge similar to when not enough postage is paid. Stamps can also be traded in before the cut-off by using a “swap-out” form which you can find on the Royal Mail website or at the Post Office.
- Self-employed to make tax payment: Self-employed workers who complete a self-assessment tax return each year will need to pay the second installment of their tax bill by July 31. If you miss the deadline, you could be fined £100 or more depending on how late you leave it.
