Losing track of pension pots, or forgetting them altogether, is easily done. Estimates from the Pensions Policy Institute suggest that as many as 1.6m pots may have been “lost”, as of October 2018, with a value of nearly £20bn. The government is working on 'pensions dashboards', which should allow you to see all your pension pots together, including ones you may have forgotten about. But with the project yet to be completed it could be some time before these are available.
Many people have multiple pension pots and tracking them is important – regardless of how close you are to retirement. And even if you are aware of all of your different pensions you may struggle to track them effectively. So you should take action yourself to keep track of your pensions.
Losing track of a pension is easier than you might think. Many people change job and forget their former workplace pension, or move house without notifying their pension provider of their new contact details. The Association of British Insurers recently found that just one-in-25 people would consider telling their pension provider when they move home. People can also easily forget whether they had any pension provision with an old employer.
But if you know or suspect that some of your pensions are lost you can track them down. The government runs a free pension tracing tool that can be found at www.gov.uk/find-pension-contact-details. If you know the name of the relevant employer or pension scheme, you should be able to find the contact details you require by answering a set of questions.
However, some companies and pension schemes can take time to respond to requests for information, and it can be difficult to get information or account log-in details relating to your pension.
Assess your pension
Ways in which you can track and assess your pension are growing. Open Banking, which came into effect in 2018, allows mobile apps to take your financial information – if you give them permission – and provide certain services.
Moneyhub, for example, seeks to provide a holistic view of your finances including details such as the state of your mortgage, your recent spending and your pension balance with certain providers. Similarly, Lloyds Banking has integrated Scottish Widows pensions data into its online banking app. Over time, there should be many more apps that offer you an assessment of your retirement savings.
Many pension schemes already offer an online portal that should allow members to check their progress and make changes. However, apps and online portals differ in terms of how easy they are to use, what you can do with them, and the amount of information they provide. So if you are consolidating various pensions into one, take into account the quality of these attributes when deciding which one to stick with.
“Consider the functionality of the platform and reporting it offers,” says Ricky Chan, director at IFS Wealth and Pensions. “For example, can you easily make additional voluntary contributions and fund switches? What reporting does it do? Does it offer simple performance data or more than that? Does it help you put your goals in and track your projections, and does it show higher earners how much they have paid in relative to the annual allowance?”
Apps and online portals are not available with every pension scheme. But providers have to give you updates at least once a year, even if this is by post. Members of defined contribution schemes should receive information in the statement, such as the value of their pension at the start and end of the year, contributions made, investment performance and fees. An estimate of your income on a selected retirement date should also be included.
What to look for
You should consider your retirement savings in the broader context of your overall wealth, including your cash holdings, property and any investments made outside a pension. You should then estimate how much regular retirement income you might need, based on your outgoings and future plans, and check your progress. Reviewing this at least once a year is a good idea because circumstances can change and future projections are, at best, an inexact science.
“The most important thing to look at is your own needs,” explains Kay Ingram, director of public policy at independent financial adviser LEBC Group. “In practice, it’s about long-term sustainable income, and the best information you can get is what your income needs are. You can talk about risk in the abstract and charges, but if that’s all you consider you will miss the strategic information about the income you want.”
Ms Ingram suggests that you split your income requirements into two categories: essential and discretionary spending. Those in retirement can alter their discretionary spending according to what money they have available.
Some tools can help you envisage your optimal level of pension provision. The Retirement Living Standards website, which launched last year, seeks to show how much you might need in different scenarios. Some pension providers set out how much money you are on track to have saved by retirement age and, in some cases, what annual income this could provide.
When you have a rough idea of your goals, there are ways to assess if your pension is on track. Firstly, consider whether you are contributing enough. If you are, assess how the funds in your pension are performing versus their benchmarks and whether other funds within your level of risk tolerance might deliver stronger returns. Also consider the choice of funds your pension offers and their charges if you are considering switching funds within your existing scheme.
As when choosing any investment, trying to find a better fund within your pension requires a careful assessment of potential alternatives' processes, the themes they focus on and how they have held up in different market conditions. And apply the same level of diligence to their charges.
It can be extremely difficult to make comparisons. However, regulation could mean that pensions are checked more closely in the future. In May, the Financial Conduct Authority proposed new rules requiring Independent Governance Committees, which review workplace pension schemes, to consider three “key elements” of value for money.
Independent Governance Committees would need to look at charges and costs, investment performance and quality of services provided. They would be expected to challenge pension providers on high costs and charges, and highlight cases where rivals look less expensive.
Should you consolidate your pension?
If you have accumulated multiple pension pots or wish to avoid this happening, consider consolidating them. Doing this each time you change job or all in one go can hugely reduce the effort involved in monitoring your retirement savings.
But avoid merging your various pensions into a pot that has performed poorly or has high costs. It is also important not to merge away pensions that come with valuable guarantees, in particular, defined benefit schemes.
"Consolidation isn't right for everyone or for every pension, adds Ms Smith. "Some older style pensions may have valuable features that could be lost when they are transferred."
Smaller pension pots with a value of less than £10,000, meanwhile, can offer tax benefits. Ms Ingram points out that you can take a lump sum from up to three such small pots without triggering the Money Purchase Annual Allowance. This is a reduction in the tax relief on how much you can put into defined contribution pensions after making a withdrawal. However, 75 per cent of the amount is subject to tax and taking a lump sum could push you into a higher tax bracket.
See more on this in the Money section of 24 January – Consolidate your pensions in the most beneficial way.
