As 2022 draws to a close, you might be making plans for the new year. Financial resolutions can be a great way to start afresh – and on the right foot – as well as a useful first step to forming new monetary habits.
Whether you plan to collect your pension in 2023 or your retirement is still some way off, one simple task to consider over the festive period is finding your “lost” pensions. This exercise can be useful even if you are already retired.
A recent report from This Is Money found that UK adults have as much as £50 billion sitting in inactive or dormant accounts. Nearly three-quarters of that amount – a massive £37 billion – is thought to be sat in lost pensions.
Whether you’ve changed jobs, moved address, or simply forgotten about a pension you took out years ago, now is a great time to trace your lost money.
Tracing a lost pension is easy but could prove invaluable
The cost of living crisis has dominated headlines over the last 12 months, as rising inflation and spiralling energy bills left millions of homeowners with tough choices.
If you are currently contributing to a pension, you might have found your contributions harder to come by. For those in retirement, your pot won’t be going as far as it used to.
Finding your forgotten pension funds in lost accounts this winter could make a huge difference to your 2023.
Canada Life recently found that 16% of UK adults have tried to find a lost pension. Of those, 9% have been successful, with that pension being worth more than £6,000, on average.
Think about your former employers and any private pensions you might have taken out, then dig out your financial paperwork.
You can also use the government website to trace your lost pensions. Simply input the name of a former employer or pension provider and the system will locate their up-to-date contact details for you.
Once you’ve found your lost pensions you might consider consolidating them
Finding your lost pensions will mean that you have full control over your retirement pot. One option you might consider is consolidation. There are financial and non-financial benefits to this but it won’t be right for every person or every pot.
Here are a few pros and cons to consider.
Pros of pension consolidation
- You’ll save yourself time and effort at retirement
Using your free time now to track down and consolidate lost pensions means they’ll all be in one place when you retire.
That means only one set of paperwork and contact details to keep hold of and quotations and illustrations that show your whole pension amount.
- You might pay lower charges or see better performance
Older pension plans will sometimes have higher charges, fewer fund choices, and limited flexibility.
As you find lost pensions, be sure to research their fees and fund performance so that you can consolidate them into the most cost-effective plan.
- You can make better decisions when you have all the information
Knowing how much you have in your combined pension pot puts you firmly in control of your retirement. It’s much easier to make sound decisions when you have all of the available information.
The additional funds held in lost pots could make the difference between living or not living your dream retirement.
Cons of pension consolidation
- Your older plans might contain valuable benefits with specific conditions
When you find your lost plans be sure to find out what they offer. Some older plans might offer specific benefits like guaranteed annuity rates, minimum pension amounts, or more generous death benefits than your newer plans.
Transferring away, or not taking your pension in specific ways, could mean that these are lost so be sure to do your research or speak to us.
- There might be charges to pay when you transfer away
You’ll need to look at any charges applicable to a transfer. Is the cost of the transfer sufficiently outweighed by the benefits of moving into a different plan?
This won’t always be an easy decision but we are on hand to help.
- You could end up paying more tax if you take a large pension in one go
If you take a large one-off pension from a consolidated pot, you could push yourself into a higher bracket. Certain “flexible” withdrawals, meanwhile, could see you pay emergency tax. This can be claimed back but you’ll need to factor the time this takes into any time-sensitive retirement plans.
Finally, if your lost plans are small (below £10,000) you might be better off taking up to three of them as “small pots”. These are lump sums (25% is tax-free with the rest taxed as income), but they don’t count towards your Lifetime Allowance (LTA). This could be especially useful with the LTA currently frozen.
You’ll lose the option to do this if you transfer a small pot into a larger plan so think carefully.
Get in touch
Please email hello@globeifa.co.uk or call us on 020 8891 0711 to discuss how Globe IFA’s expert financial advisors can help you to find your lost pensions and decide if consolidation is right for you.
Please note
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
