Brits lose up to £800 a year holding multiple pensions – here's how to combine yours
MILLIONS of savers could be losing up to £800 a year if they've notched up multiple pensions due to frequent job moves.
The cost of administering a pension can set you back anything from £20 to £80 a year, according to Hargreaves Lansdown.
But the financial provider's research found that 18 to 24-year-olds are set to have 11 jobs on average over the course of their working lives, which means you could end up shelling out fees of between £220 and £880 a year.
Quto-enrolment, which was introduced in 2012,means bosses have to set-up pensions for workers between 22 and the state pension age who earn more than £10,000 annually.
And millions of people could be overpaying given the latest Office for National Statistics (ONS) show that 21.93million employees (77% of workers) now have a workplace pension.
Sarah Coles, personal finance expert at Hargreaves Lansdown said: "Each time you move job, it’s worth considering consolidating your pensions.
What is pensions auto-enrolment?
HERE’s what you need to know about pensions auto-enrolment:
What is pension auto-enrolment?
Since October 2012, employers have had to enrol their staff into workplace pension schemes as part of a government initiative to get people to save more for retirement.
When does auto-enrolment apply?
You will be automatically enrolled into your work's pension scheme if you meet the following criteria:
- You aren't already in a qualifying workplace scheme.
- You are aged at least 22.
- You are below state pension age.
- You earn more than £10,000 a year in 2019/20.
- You work in the UK.
How much do I contribute?
There are minimum contributions that you and your employer must pay.
Your minimum contribution applies to anything you earn over £6,136 up to a limit of £50,000 (in the tax year 2019/20). This includes overtime and bonus payments.
A minimum of 8% must be paid into the pension, with you contributing 5% and your employer paying at least 3%.
What if I have more than one job?
For people with more than one job, each job is treated separately for automatic enrolment purposes.
Each of your employers will check whether you’re eligible to join their pension scheme. If you are, then you’ll be automatically enrolled in that employer’s workplace pension scheme.
Can I opt out?
You can choose to opt out, but you’ll miss out on the contributions from the government and from your employer. If you do choose to opt out you can opt back in later.
"This may be to move into your current employer's scheme, or asking it to pay into one from a previous employer.
"Now that more pension providers have ditched exit fees for transferring pensions, it can be even more rewarding."
Are there any other perks for moving my pension?
Moving multiple pensions into one pot can can also mean you reduce the one fee you do pay.
Sarah Lord, chief client officer at financial advice firm Succession Wealth said: "One of the main benefits is that consolidation can lead to lower fees and charges, as having more in your pension pot typically reduces what you have to pay."
Questions to ask before transferring your pension
IF you’re thinking about transferring your pension, here are the key questions to ask, according to the Money Advice Service.
Questions to ask your current provider:
- Can I transfer? There can be restrictions on which pensions you can transfer.
- What is the ‘transfer value’ of my pension? If it’s the same as your pot value, it’s unlikely you’ll be charged a fee when you transfer.
- What fees will I have to pay?
- Will I lose the right to take out my money at a certain age? This is called a ‘protected pension age’.
- Will I lose any special features, e.g. a guaranteed annuity rate?
- Will I lose the right to take a tax-free lump sum of more than 25% of my pension? This is called a ‘protected tax-free sum’.
Questions to ask your new provider:
- Do I apply to transfer through you or my current provider?
- Are there any fees for transferring in, e.g. set-up fees?
- Do I have to make regular payments into the new pension?
- What investment funds and levels of risk do you offer? You may need help from a financial adviser with this.
- What options do you have for when I want to take my money out?
Simply having one pot can also make it easier for you to manage your money and help to ensure you don't lose it.
Plus, it can make it easier for you to make decisions come retirement.
Ms Coles also points out that if you decide to buy an annuity – a guaranteed income for life – with your pension, that you tend to get a better deal on pots worth more than £10,000.
What should I watch out for?
Moving your pension should be relatively straightforward, according to Ms Lord.
Just check with the provider you're leaving and the provider you want to join for the options.
Also ask whether you'll be charged a fee to exit your existing provider and to join your new provider, and whether the age at which you can access your pension is different – for most people this is currently 55.
If what your pension is invested in also matters to you; ensure you're moving to a pension that offers the choice you want.
You also need to ensure the pension you're leaving doesn't come with valuable added perks.
This can include a guaranteed annuity rate at retirement.
Ms Lord said: "With interest rates where they are currently, having a guaranteed annuity rate could be a huge benefit, so there is a definite case for being cautious and not making rash decisions."
What are the different types of pension?
WE round-up the main types of pension and how they differ:
- Personal pension or self-invested personal pension (Sipp) – This is probably the most flexible type of pension as you can choose your own provider and how much you invest.
- Workplace pension – The Government has made it so it's compulsory for employers to automatically enrol you in your workplace pension, unless you choose to opt out. These so-called defined contribution (DC) pensions are usually chosen by your employer and you won't be able to change it. Minimum contributions rose to 8% in April 2019, with employees now paying in 5% and employers contributing 3%. This is up from the 5% of contributions workers and companies were required to pay in previously, where employees contributed 3% and employers 2%.
- Final salary pension – This is a also a workplace pension but here, what you get in retirement is decided based on your salary, and you'll be paid a set amount each year on retiring. It's often referred to as a gold-plated pension or a defined benefit (DB) pension. But they're not typically offered by employers anymore.
- New state pension – This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £175.20 a week and you'll need 35 years of national insurance contributions to get this. You also need at least ten years' worth of national insurance contributions to qualify.
- Basic state pension – If you reached the state pension age on or before April 2016, you'll get the basic state pension. The full amount is £134.25 per week and you'll need 30 years of national insurance contributions to get this. If you have the basic state pension you may also get a top-up from what's known as the additional or second state pension. Those who have built up national insurance contributions under both the basic and new state pensions will get a combination of both schemes.
Ms Coles added: "Some pensions offer a guaranteed level of monthly income, or a guaranteed annuity rate that’s much higher than you can get on the market now.
"Others let you take more than 25% tax-free cash. All of these should not be given up easily, and in very many cases shouldn’t be given up at all."
Also be cautious about leaving a workplace pension to start-up your own pension as you could lose out on hundreds of thousands of pounds.
If you're unsure, consider seeking independent financial advice. You can use Unbiased or VouchedFor to find a recommended advisor near you.
Bear in mind that if you have a defined benefit pot – known as a final salary scheme – worth more than £30,000 you will have to get financial advice.
Likewise, if you've got a defined contribution pension, which is what most people will be auto-enrolled into, you also have to seek professional advice if your pot is worth more than £30,000 and comes with certain guarantees.
Stay alert for pension transfer scams as fraudsters often target people transferring their pension with promises of investments that are too good to be true.
How can I track down lost pensions?
If you've had multiple jobs and can't remember where your pension is, your best bet is to use the government's free Pension Tracing Service.
It can't tell if you if you have a lost pension, but as long as you can remember your employer's name it will tell you the will tell you the contact details of the firm's pension provider.
Also check for paperwork that might help you locate an old pension.
We spoke to one airport worker who found a lost pot worth £21,000.
Pensions minister Guy Opperman is also looking into whether to allow savers early access to workplace pensions to buy a house.
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