Around £400 million worth of pensions are thought to be left unclaimed, with estimates suggesting that there could be as many as 50 million dormant pensions by 2050.
People have estimated 11 jobs on avg in working life. By 2050, without transfers, would result in around 50m dormant pension pots #pensions— DWP Press Office (@dwppressoffice) April 23, 2013
We’re moving jobs more than ever, and it appears we’re leaving a trail of pensions in our wake. This can catch up with you when you reach retirement, and we’re not just talking logistically - there’s a very real chance that these dormant pensions could hit you financially.
You’re paying excessive annual fees
Most pension providers will charge you an annual fee, which typically covers the administration costs of managing your pension. We do here at PensionBee.
The industry average is 0.8%, but some can be well in excess of that - in fact we did some digging last year and found that some annual fees can be double the industry average.
An excessive annual charge can have a big impact over time as your provider will take the fee regardless of whether you make contributions or see growth in your fund. Expensive fees could therefore diminish your pot if left unattended.
How you can fix things
Excessive annual fees can eat away at those dormant workplace schemes so you might want to dig out your old pension paperwork. If you think you’re paying too much, then it could be worth transferring to another plan that’s better value, or consolidating any old pots into one plan that’s more cost effective.
They’re hiding a host of other costs
Whilst things do appear to be improving, there’s still a likelihood you could be paying extra on top of your annual management charge - particularly if you have money in a pension plan that was taken out before 2001.
Charges to look out for in any small print include:
Underlying fund fee: a fee that comes on top of your annual management charge. This pays your pension’s money managers.
Service or policy fee: an admin fee that’s sometimes hidden.
Inactivity fee: a fee designed to penalise you if you stop paying into your pension. Occasionally referred to as ‘active member discounts’.
Exit fee: a fee to withdraw or transfer your savings. Reports suggest some 670,000 savers have faced exit fees up to 10% which has led to the FCA imposing a cap of 1% and an exit fee ban on any new plans. Should you sign up to PensionBee, we’ll let you know if we find any exit fees greater than £10 before we transfer the pension. Plus we won’t charge you an exit fee if you leave!
Platform fee: a cost some providers impose just for the privilege of using their service.
How you can fix things
Unfortunately, it’s another case of digging out that old pension paperwork. Sift through the annual statements from your old providers or ask them for a charging schedule. See what you’re paying and if the sums don’t add up, explore what else is on the market. Just be particularly careful of any hefty exit fees.
Their funds aren’t performing
Finally, it’s worthwhile examining the performance of your dormant pensions. The average pension fund finished 2016 up by 15.7% according to research conducted by Moneyfacts last year, with the vast majority (94%) delivering positive growth.
It’s worthwhile keeping on top of trends like these, as they can give you a rough idea about how your pensions should be performing. But what can you do if you figure out you’re being short-changed?
How you can fix things
Your annual statements ought to indicate whether your pension is growing or not so see if you can track down the last two or three of these. It can be useful to compare your own investments with others out there. Do bear in mind, however, that pensions are a long-term investment so their value can go down as well as up, and past performance is not an indication of future performance.
If you do decide to move provider, be sure to examine any factsheets on potential new plans and do your research. You might find it easier to use a pensions service that doesn’t rely on paper statements as this could be more convenient when it comes to checking your pension performance - and to keep on top of fees.
Have you ever been shocked by pension costs? Tell us in the comments section below.
Risk warning As always with pensions, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.