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Give your old policies a summer sort-out

You might keep track of your DIY investment portfolio, but old pensions and investment plans need attention too
July 30, 2015

You might be familiar with the feeling of losing your glasses or car keys, but could you also be one of the thousands of UK savers who has lost or misplaced an old pension scheme or savings policy?

According to LV= the number of people trying to hunt down lost pension pots has more than tripled in the past 10 years, with enquiries received by the Pensions Tracing Service increasing by almost 250 per cent since 2005.

With people moving jobs more frequently, it can be hard to keep track of old pension schemes you may have saved into. LV= says today's workers have, on average, two workplace pensions, but one in five have already saved into three or more workplace pensions since entering into employment. If you are like the 63 per cent of over-45s who pay little or no attention to their pots according to Aviva research, you might not know how many pots you are sitting on.

And even if you do know what you hold and where those pots are, have you checked up on the investments in them? Old schemes can be full of underperforming funds in expensive and dated share classes which you would not choose to hold on to in your active investment portfolio and which could be dragging down your savings potential.

Chelsea Financial Services highlighted a range of these funds last month, with a list of 20 tracker funds that underperformed their indices by as much as 9 per cent in three years. The majority of the underperforming funds, which included Family Charities Ethical Trust (GB0005782627), Aviva UK Index Tracking Fund (GB0004459797) and L&G (N) Tracker Trust (GB0008468174) were old share classes of funds where high fees were weighing on performance.

The issue is not confined to pensions. Hargreaves Lansdown suggests that more than £4bn is still invested in what it calls dinosaur funds in the UK. Those include with-profits funds, stakeholder pension schemes, fund manager-run individual savings accounts (Isas) and child trust funds. Some of these may have been taken out as long ago as the 1970s and now look clunky and inappropriate.

 

Standard Life policyholders need to act now

Around 65,000 people who took out Standard Life with-profits policies have still not claimed shares and cash due to them when the mutual society listed on the stock exchange nine years ago and have only one year left to do so.

When Standard Life demutualised in 2006, 2.4m policyholders were entitled to claim cash and shares from the mutual's with-profits fund. But 280,000 failed to claim the shares they were due. Now 60,000 individuals owed shares still have not claimed and 5,000 still haven't taken up the cash due to them. They have until 9 July 2016 to claim assets adding up to as much as £139,000 in one case.

The average unclaimed pot stands at about £1,270 according to Standard Life and unless claimed by the final deadline of 9 July 2016, the money will go back to Standard Life for general corporate use and charitable giving.

People qualifying for payouts are those holding with-profits policies that began before March 2004 and were still in place in October 2005. When the company demutualised, eligible members were given 185 shares and an allocation of variable shares relating to the size of their investments as well as bonus shares. In March 2015 those shares were consolidated into new shares and each holding updated. Policyholders will also be able to claim back dividends.

If you think you might be due shares or cash from Standard Life, contact Standard Life Shareholder Services direct or Capita Asset Services, who will handle the claim for an administration fee of 15 per cent plus VAT, which will be deducted from any cash or dividend entitlement.

Capita Asset Services has been running a tracing programme to link up policyholders with their outstanding shares and has reunited 10,000 more policyholders with their assets so far, handing one person shares and dividends worth £109,300.

Halifax, Scottish Life, Friends Provident and Bradford & Bingley also struggled to give back investors what they were owed when they demutualised from 2000 onwards. While some policyholders are thought to have passed away, many more are thought to have missed out due to having changed address or forgotten about the policy.

 

Other policies due a summer sort-out

■ Contracted-out pension schemes

The pensions shake-up in 2015, which replaced the current state pension system with a single-tier state pension, has resulted in the end of payments into contracted-out pension schemes. These were previously held separately to personal pensions and Patrick Connolly, chartered financial planner at Chase de Vere, says: "This means that many people had a personal pension into which they contributed and a separate contracted-out scheme where payments were made automatically by the government. Now that payments into contracted-out schemes have stopped it has become much easier for people to forget about them and lose track of them."

■ Stakeholder pension schemes

According to Hargreaves Lansdown, more than £100bn is held in stakeholder pension schemes in the UK, which can charge up to 1.5 per cent for the first 10 years from the initial investment and 1 per cent thereafter. That is a high fee unless you are invested with a very skilled manager.

Laith Khalaf, senior analyst at Hargreaves Lansdown, says: "The reality is often you aren't. more than 90 per cent of money invested in UK funds within stakeholder pensions has underperformed the FTSE All-Share over the past 10 years. This isn't too surprising. Many of these funds were built to be average, so when charges are deducted, the result is often disappointing performance."

■ Endowment policies

Many people took out these policies to pay off their mortgage, according to Mr Connolly, and might have since paid off their mortgage by other means. Is an endowment policy still right for you? He says: "Most remaining endowments should now be approaching maturity and so it is important that people understand where these policies are and what they're worth."

■ With-profits funds

These investments fell into disrepute in early 2000 when investors' policy values were cut and investors started to view them as riskier investments. But there is still £220bn invested in with-profits funds held through pensions, mortgage endowments and life assurance plans, according to Hargreaves and consultant AKG.

Mr Khalaf says: "One of the problems with these funds is that they don't offer great transparency. Everybody's money is pooled together in the fund and investors have to rely on the insurance company to give them their fair share of profits, with little visibility of costs. Many are now so conservatively managed they hardly invest in the stock market at all."

■ Life assurance contracts

Many people have life assurance contracts which they took out a long time ago and pay into regularly but never review. Think about whether you still need life assurance or are paying too much. There is also a risk that policyholders might die and the paperwork for their policies gets mislaid.

Mr Connolly says: "It could also be that the paperwork for these policies has disappeared and so if the policyholder dies people might be unaware that the policies existed in the first place".

■ Child trust funds

Mr Khalaf says: "There are around six million child trust fund accounts with £5bn invested in them. Some of the funds available in child trust funds are simply index tracker funds, but charge 1.5 per cent a year. That's more expensive than funds run by some of the best investment managers in the UK and around three times as expensive as a competitively priced tracker fund."

The government has now stopped making payments into these and from 6 April this year they can be moved into Junior Isas, which offer a wider choice of funds. Think about whether you should move your own.

■ Savings accounts

Good savings rates are hard to find everywhere at the moment, but if you have cash saved in an old building society account you might be earning a very low rate on your cash. "Many of these accounts still exist today in accounts paying very little interest and with organisations which demutualised nearly 20 years ago," says Mr Connolly.

 

What should you do?

The obvious suggestion is don't lose track of your policies in the first place. A common mistake is to forget to tell old policy administrators of your change of address so make sure you don't lose track of them and they don't lose track of you.

What if I have lost my investments?

The Pension Tracing Service is a register of all workplace pension schemes and is free to use. However, it will not be able to tell you the value of your fund - you must contact your scheme provider to find out what your pension is worth.

If you've lost touch with a unit trust or open-ended investment company you can contact the Investment Association. For an investment trust, go to the Association of Investment Companies.

Mr Connolly says: "Alternatively, for a fee of £25 the Unclaimed Assets Register will search for old pensions, shares or insurance policies. This could prove very good value if you manage to get back in touch with assets you had previously lost touch of.”

Check on the underlying investments

If you know where you money is, but not what it is invested in, it's time to check. Adrian Lowcock, head of investing at AXA Wealth, says: "Go through that old paperwork and find your pension statements. What you want to know is what you are invested in (a breakdown, not just the umbrella fund). What all the costs are of the funds and the service (again broken down) and are there any benefits attached to the scheme. Finally what is the process and cost of transferring?

"If you do look to transfer, the cost of transferring is important but most critical is if there are any benefits attached as these can be very valuable and once transferred are lost."

If you think you might be invested in an old fund share class but don't want to transfer out of a scheme or change your investments, talk to your scheme provider who might be able to move you into cheaper, better performing share classes.

Should I combine my policies?

It is possible to combine workplace pensions when you move from one job to another, although not all funds will allow this. LV='s research found that only one in three over-45s have chosen to, or been able to, combine their pension savings into one.

It could be useful to keep your pension pots in one place but be sure to check as there are risks. Mr Connolly says: "To help keep track and administer your finances you can look to see where your holdings can be amalgamated. For example, do you have too many small investments or could your investment funds be held in one place on a platform.

"However, you do need to be very careful before transferring any assets, especially pensions, because there could be high charges or you might lose valuable benefits or guarantees."

For other wrappers, the key is not to lose the tax protection. Mr Khalaf says: "If you decide to reinvest Isa or pension funds elsewhere make sure you maintain the tax wrapper by effecting a transfer rather than cashing in and moving the money yourself. Also be aware of any capital gains tax or income tax liabilities which may be incurred by cashing in investments that are not held in a tax shelter."