News that Standard Life Aberdeen is selling its insurance business to Phoenix Group has sent shockwaves around the pensions industry, with many worrying about what will happen to these pots under the management of a company well known for its ‘zombie funds’.
Phoenix Group set to buy Standard Life Aberdeen insurance business in £3bn deal https://t.co/lWwrAZex16
— Financial Times (@FT) 22 February 2018
If you’re one of the millions of savers who has a pension with Standard Life Aberdeen, read on to find out how you can ensure your retirement savings don’t get trapped in a zombie pension fund.
Zombie pension funds explained
A zombie pension fund is a closed or dormant fund that stops issuing new policies but typically holds on to the money invested until the existing policies mature. Critics of zombie pension funds believe that they’re unlikely to generate a good return for savers due to the lack of new money being invested and the charges they often impose.
"Phoenix and the Island of misfit pensions" - how one IGC is making a difference. https://t.co/DWmx51FIE9 via @henryhtapper
— Pension Plowman (@henryhtapper) April 8, 2018
Zombie pension funds have made the headlines before, most notably during the 2016 BHS pension scandal. When the company went into administration and its pension fund collapsed, members were put into a zombie scheme. At the same time new rules were introduced by the government’s Pension Protection Fund to ensure pensions are paid when a company goes bankrupt.
Potential zombie pensions
Your pension savings could become a zombie pension if:
- You have a defined benefit pension or defined contribution pension
- You think there’s a pension deficit
- Your employer is reporting a poor performance
- Your employer is considering a merger or acquisition
- Your provider sells your pension to a zombie firm (similar to Standard Life Aberdeen’s deal with Phoenix Life)
How to protect yourself from a zombie pension fund
Follow these five tips to ensure your pension savings don’t get trapped in a poorly performing zombie pension fund.
1. Locate your old pensions
Finding all of your old pensions is the first step to securing your retirement fund and ensuring you’re not caught up in any zombie schemes. If you’ve had a few jobs since Auto Enrolment was first introduced in 2012, it’s likely you’ll have started several workplace pensions by now.
Have you lost track of your old pensions? Here's what they could be worth 🤔 #pensions #retirement #money https://t.co/vpStDD0vRU
— PensionBee (@pensionbee) 2 May 2018
While there’s nothing technically wrong with having your savings spread in a range of pension funds, there’s a risk that as you get older and change jobs a few more times you might lose track of your older pensions. Plus, if you don’t know where your money’s saved, you won’t have any idea how it’s performing.
As zombie pension funds tend to occur where funds are older and closed down, leaving your money where it is until you retire might not be the most shrewd move – especially if you’re several decades away from retirement. Tracking down your old pensions and having greater oversight of your money has no downsides.
2. Combine your pensions
Once you’ve located any savings trapped in a zombie scheme it could be worth moving the pensions into one pot. This can give you more control over your savings, simplify your retirement planning and may even offer better value. It also means that any new workplace pensions you start can be paid directly into this pot, ensuring your money will always remain in one place.
If you learn that one of your old pension schemes is closing down, or an old employer or provider is being merged or selling the pension part of their business to a zombie provider, consider moving your pot. If you have a defined benefit pension, you can transfer up to £30,000 into a defined contribution pension like the ones offered by PensionBee. However, if you’d like to transfer more than £30,000 you’ll need to seek advice from a regulated financial adviser first.
3. Monitor the performance of your pension
When did you last check your pension performance? Nearly 2/3 of over-45s never have! http://t.co/mh6BSZ2DPc
— PensionBee (@pensionbee) 3 August 2015
If you transfer all of your old pensions into one pot, you’ll be able to manage them through one central account. Depending on the provider you go with, you may still find yourself receiving paper statements which, while inconvenient, should be checked on a regular basis.
You’ll need to monitor the performance of your fund and make sure your provider is claiming things like tax relief on your contributions. You should also check what fees you’re being charged and if there are any charges above and beyond an annual management or administration fee. Old and frozen workplace pensions could be incurring charges such as inactivity fees which, if left unchecked, could be eating away at your balance.
You should check what fees you’re being charged
If you’re a PensionBee customer we’ll charge you one annual fee, which decreases the more you save. We’ll also take care of your tax relief for you and will apply for it on the 15th of each month with funds usually added to your balance by the 28th of the following month. You can also easily manage your money online through your customer dashboard which we call the BeeHive. Here you can check all of the payments in and out of your account and can also adjust your pension contribution levels.
4. Keep an eye on the business pages and our blog
Unless you have a keen interest in the financial markets and are a regular subscriber to the FT, it’s unlikely that you’ll hear about every merger and acquisition and the impact this could have on your savings.
To keep on top of what’s happening with the major lenders, insurers and pension providers it’s a good idea to get into the habit of skim reading the business pages every time you read the paper. Also, make sure you open any emails and post sent by your pension provider in a timely manner as they’ll have a duty to keep you informed of any changes that might affect your money.
Watch out for these #retirement warning signs! 😱😱😱 #pensions #money #getsmart https://t.co/qX6bh9Z4Lu
— PensionBee (@pensionbee) 19 April 2018
The PensionBee blog is also a good source of industry news and the Pensions Explained section of our website answers some of the most commonly asked pension questions.
5. Speak to your pension provider
If you have any concerns whatsoever about your pension, you should contact your provider. They’ll be able to answer any questions and can indicate how changes may affect your savings.
If you’re already a PensionBee customer, your designated BeeKeeper will be more than happy to help or alternatively you can get in touch with the PensionBee team.
Risk warning
As always with investments, 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.
