This is a very important topic – for everyone, regardless of income or wealth, but possibly more so for the working generations, who may believe that they have no retirement fund at all.
Did you know that in the UK, there are approximately 1.6 million lost pensions, worth approximately £19.4 billion, (some reports claim the figure is as high as £37 billion)?
Changing Employment Trends
The culture of work has changed. In the past, an individual may have had one or two jobs during their working life. They may have also only owned one or two homes.
Today, research tells us that over 16% of millennials (born between 1980 and 1996) have had more than 10 jobs since they started their working career. Younger Gen-Xers display similar numbers. The average period a 25 to 34-year-old employee stays in the same job is just 2.8 years, compared to 10.1 years for workers aged 55 to 64. In 2017, it was reported that the average individual will move out of their parent’s home at 21 and live in seven different houses. For some people, they may even have many more jobs, and live in even more different places!
So it can be easy to lose track of a pension fund; you may have too many to keep track of, you may have had a bad employment experience and not want to think about that job ever again! You might feel the value is not worth the hassle. You may move house without notifying your pension provider, you may even think that a state pension will support your retirement (it won’t). The fact is pensions are complicated and many perhaps do not understand what the information in the paperwork means.
The Ever-Changing Pension Landscape
Many companies are closing their Defined Benefit (Final Salary) Schemes and replacing them with Defined Contribution (Money Purchase) Schemes. This is due to the reduction in annuity rates and a decline in their popularity, as well as the introduction of auto-enrolment in October 2012. The youngest employees are directly impacted by workplace pension reforms (22 to 29 years old) and have seen the largest growth in workplace pension membership since 2012, growing from 31% to 80% in 2019 alone.
There’s more on auto-enrolment too. Unless an employee has gone to the effort of signing out of their employer’s pension scheme, they will normally have a pension from that employment. Especially if they were employed for over 3 months and earned more than £10,000 a year. Minimum contributions have gradually increased since their introduction and from 2019 they have equated to 8% of salary (or qualifying earnings), with a minimum of 3% contribution from the employer.
For example, an individual earning the average annual UK salary of £29,600 p/a will have had between £1,868.80 and £2,368 paid into a pension fund over the course of the year. Multiply that by the average 2.8 years that a 25- to 34-year-old stays in a job and you get £5,232 – £6,630 in a pension fund, ignoring any growth or charges.
This is made up of an individual’s employee contributions of £934.40 – £1,184 directly from salary and an additional £233.60 – £296 of tax relief from HMRC (they do give something back) plus employer contributions of £700.80 – £888.00.
Who can afford to give up that sum of money each year, when it could go into a retirement fund? If you have a lost pension, that money belongs to you. We’ll go into a little more detail later but first, a brief story.
Joanna was worried sick when she was furloughed due to the COVID-19 pandemic. She told me that she didn’t even have a pension and some of her previous employers had gone into administration and ceased trading. Now, regardless of this, it didn’t mean she didn’t have a pension. I convinced her to chase up her old employers to try and locate her pensions. Well, guess what? We have already found a few of them, with a combined value of over £5,000.
The process we used was to prepare letters to her previous employers and, in the case of the companies that were no longer trading, identify the pension administrators to chase up those pensions. We are still tracing more of them and are hopeful of adding to that pot in the future.
The Story Continues
Lately, I’ve been discussing the lost pension dilemma with friends over a pint at my local (I know I am an exciting person to have a beer with!). These are not mere acquaintances; they have been close friends for over 20 years.
Pete is the typical lost pensions case, multiple employments, multiple homes, some abstract paperwork in a box. I’ve pestered him for a while to let me have a look and the general response is ‘’I’ll get around to it!’’
Recently he did and just looking through the paperwork, I have found a Defined Benefit pension and several Defined Contribution schemes, and we are working together to piece his employment history and past employers together. We will be writing to them in the near future, so watch this space!
Also around the table was Mark who was once a qualified nurse working for the NHS and in the Private Medical Sector. He had no idea that he may have any pension benefits with his previous employers. I explained the rationale and I am trying to convince him to trace those too.
In fact, I read two amazing statistics local to us at Interface Financial Planning.
- Birmingham is the worst city in the UK for claiming lost pensions and is the UK city with the most £££ to find.
- Birmingham is crowned as the UK’s job-hopping capital. The city’s population is recorded to have changed their jobs on average, 24 times. (That’s potentially 24 pension pots).
There must be thousands of people out there in the same predicament, so, you see, perhaps you have a lost pension.
Why You Should Find Your Lost Pension
Consolidating your pensions into one scheme can remove the hassle and paperwork of managing lots of different plans and stop you ‘losing’ track of them. Merging your pots together could also reduce your fees. Don’t forget, if you have stopped paying into a pension, the fees have not simply ceased, therefore, your pension is likely to be reducing each year. Did you know that you may be able to choose your own investments, especially if you have strong ethical views and want your money to do some good? All this could result in a higher pension income and a more comfortable retirement. You might even be able to stop working earlier!
- Think of it as a treasure hunt. Look for yourself, speak to your children or grandchildren and friends.
- Do you or they have any old paperwork lying around in a box or in the loft? If you have and it has a Plan number / Member number on it, it’s easy to trace and it isn’t really lost.
- If you don’t have any paperwork, make a list of your past employers that you may have had a pension with.
- Watch this space and ask for help. This problem will get bigger.
This problem is not going to just disappear, especially for the generations who are more likely to accumulate multiple jobs and multiple pensions over the years. As I said, it could affect everybody, the wealthy, and the not-so-wealthy.
I go back to the question; do you have a lost pension? Hopefully, this article might prompt you to find out!
National Pension Tracing Day – a Date for Your Diary
During my research, I discovered a company based in London called Punter Southall Aspire. They’ve decided to start up a National Pension Tracing Day which is backed by big players Standard Life, Scottish Widows, Aegon and Legal and General.
The day will take place on 31st October and takes advantage of the extra hour that we’ll gain when the clocks go back. The idea is that everyone should use that extra hour to trace any lost pensions. Please use this extra hour to trace your lost pension, it’s a worthwhile exercise!