Your old pension pots are COSTING you money – how key move can save you £13k in retirement
SAVERS with old pensions could save thousands of pounds in retirement by combining all their pots, new data shows.
Many people have money sitting in old work pensions from years ago, or may even have several pots from different jobs.
Not only is this an admin nightmare, but you could also be paying those pension firms thousands of pounds in rip-off fees – reducing the amount you’ll have saved for retirement.
This is because while the fees firms can charge on new pension schemes were capped in 2015, older schemes didn’t have to follow the same rules.
These old-style pensions are closed to new joiners, but continue to drain cash from their members through huge charges.
If you joined a company’s workplace pension scheme before 2015, you might be stuck with a pot charging you hefty fees.
But you don’t have to keep feeding these firms your retirement funds – you can move all your pensions into one newer pot with lower charges.
Tom Selby, head of retirement policy at AJ Bell, explained: “While modern pensions that people are automatically enrolled into are protected by a 0.75% charge cap, it was not uncommon for older-style schemes to charge double this amount or more.
“Over the course of your retirement, this difference in charges could cost you thousands of pounds.”
AJ Bell took three pension pots worth £10,000 each with charges of 1%, 1.5% and 2%, which are common fees for old-style pensions.
It calculated that by combining these pensions into one new pot charging 0.5% – a much more standard rate for modern pension schemes – you would save £12,979 over 20 years.
So, if you combined those pensions at 45, you would have almost £13,000 more in your retirement pot by 65 than if you had left them alone.
Over five years you would save £1,833, in ten years you would save £4,433, while over 15 years you would have saved £8,044.
How do I combine my pension pots?
It may sound like a lot of admin, but combining your pensions is a fairly straightforward process as long as you can track down your old pots.
To start with, you need to choose a new pension provider. You can use a service like Money.co.uk’s private pension comparison tool to help find the most suitable firm for you.
Next, track all your pensions down using any paperwork you can find and ask each provider how much you have saved and what charges you’re paying.
If you can’t remember what pensions you have or where they are, there are several services available to help track them down.
For example, the government has a Pension Tracing Service online or call 0800 731 0193.
AJ Bell also has a service to locate old pension pots, visit its website to get started.
You can also try ringing your old employers’ HR department to ask for the details.
Once you’ve found all your pots, give your new chosen pension provider the details and they should do the rest of the work for you.
“Before transferring any old pensions, you should check there aren’t any valuable benefits attached which you may lose or exit charges that will be applied,” Mr Selby warned.
“Ask your provider – they should be able to tell you if this is the case.”
For example, the City watchdog has repeatedly warned it’s not in most savers’ best interests to leave a “defined benefit” pension scheme, where you receive a guaranteed income for life.
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