Why you should think of workplace pensions like bank accounts
We have a big problem in the UK. We’re not saving enough for retirement.
Yet, shockingly, there is around £20bn of ‘lost’ pension money stuck in pension pots that people have forgotten about.
When did you last check your pension statement? Any idea what it’s worth? What about older pensions? Do you remember if you even had one?
Here’s the issue with our personal pensions: we don’t think of them as being real money. Because it’s money we won’t need for years and years, it’s easy to forget about it for the time being.
Now think about your bank account. I bet you check it every month to see you’ve been paid correctly. You might have additional bank accounts that you put savings in to. Again, I bet you know there’s money in there and you’re not going to forget about it. You probably know your login or account details and can easily check your accounts.
Now think about this scenario: you’ve decided to change bank accounts. But you’ve still got money in your existing bank account. Are you going to just leave money sat in that existing one and forget about it? I didn’t think so.
The problem with pensions, despite them often being called ‘personal pensions’, is that we don’t take them personally.
For most of us, our pension is in the form of an employer pension set up by whoever we work for.
We don’t have to be very active in managing it: payments get made on our behalf through our employer and get invested into a pension. That’s it. We don’t really think beyond that.
Back in the day, you tended to work for the same company most of your working life and it wasn’t really an issue. A bit like having one main bank account for all your money.
But today, many of us will work for several different companies in our lifetime. And each of those will come with its own workplace pension. So, over your lifetime, the number of pensions you have increases.
Dealing with older pensions
Make note of all the jobs you’ve had during your lifetime. Maybe use any old CVs to help remember dates.
Make note of the details of any pensions related to these jobs.
Wrack your brain realising you haven’t got a clue.
Don’t worry…it’s completely normal. I’m still trying to track down a pension from over 10 years ago that I have no idea exists or not. You can try using the Government's pension tracing service however I've never had any success and is really designed for larger companies.
2012 is the key date for workplace pensions
As a starting point, go back as far as 2012. That’s when workplace pensions started to become required by law.
Chances are any jobs you’ve had since 2012, you’ve probably had a workplace pension. And any jobs since 2019, you’ve definitely had one.
If you’re lucky, the company will still be in business and you can simply contact the HR department and ask for details of the pension you were set up with.
If the company has gone bust, or been bought by another company, it’s pretty tricky. This is where I’m having problems finding out if I have a pension from that job.
Don’t make these common assumptions about pensions
1) A pension doesn’t just end when you leave a company.
Many of us think that our old pensions simply get transferred when we move to a new job.
That’s not the case. Remember the bank account comparison? Bank accounts don’t just close if we open another one. We’re allowed to have more than one.
While the pension won’t be taking new contributions, it will still be an active pension that contains the existing contributions from your old job.
2) Don’t assume it will magically appear when it’s time to retire
If your pension providers have your correct address details, you should receive a letter when you approach the age at which the pension allows you to start withdrawing money from it – at the moment this is aged 55.
But if you’ve moved home since setting up an older pension, you may not get that letter.
So if you can’t remember who you had a pension with, and that pension provider has tried to contact you at an old address you don’t live at anymore, you can see how pensions ending up going unclaimed.
What to do going forwards
When you start a job
Keeping track of your previous pensions doesn’t require much info initially.
Take a note of
the pension provider
your policy number.
Write it down or save it on your phone/computer.
You should be sent some sort of welcome pack in the post. The details will be in this. Even if you keep these documents, I still suggest also keeping the basic information separately for easy access.
When you leave a job
The passive approach
Once you’ve had your final payslip from your previous job, phone up the pension provider for that pension. Ask them for a statement showing how much your pension is worth.
If you don’t have any details of the pension, contact the HR department while it’s still fresh in your mind.
Yes, phoning is annoying but, as somebody who works in financial advice, I know it’s the best way of getting the information you need.
Whether or not they then post you a document or email it you, keep it somewhere safe.
Even if you don’t want anything else to deal with, keeping these two pieces of information will save you a lot of work later on in life.
The active approaches
Once you move to a new employer, that old pension is still working for you. It may not be receiving new contributions from you, but the money already in it continues to be invested on your behalf.
Now you need to ask yourself: do I still want to keep that money in that particular pension?
Once your pension is no longer part of the scheme your employer set up, you have more freedom to do what you want with it (apart from spend it!).
1) Transfer your old pension(s) to your current pension provider
In the same way you might switch bank accounts and close the old account, you can do what’s called a Pension Transfer.
The benefit of this is you can merge everything into once pension pot, making it much easier to keep track of throughout your life.
The downside of this is that you are not really making the most of the wide number of pensions funds available to you.
But at the risk of forgetting about a pension completely, this option at least removes a lot of that risk.
2) Transfer it to a SIPP – DIY or Ready-Made.
Think of this as going it alone following a break-up. Your old employer is long gone and your pension is left to its own devices. You can now do anything you want.
A DIY Self Invested Personal Pension is effectively you choosing your own investment. Even just lumping the whole lot in to one particular share, if you wanted. (Please don’t do this – this is purely to illustrate the options). This is what’s known as a DIY SIPP and is really for more experienced investors who want a hands-on approach.
A Ready-Made Self Invested Personal Pension works in a similar way to when you have a workplace pension. Your pension contributions are invested in a fund – a mix of different assets. It’s more of a hands-off approach. You’re effectively letting somebody else manage it for you. Some of them are even retirement-specific and will look at adjusting the investments as you get nearer to retirement.
3) Actively monitor your old pensions
Even if you don’t want to deal with moving pensions around, taking an active interest in each of them can help you plan for retirement.
We should all be monitoring the value of our pensions.
Again, think about the money in your bank account. If you’re saving for something like a property deposit, wedding or car, then you’ll be monitoring the money building up in your account to see how much progress you’re making.
If you’ve not kept an eye on your pensions before, then you’re probably going to be more of a passive-active pension holder. By that, I mean actively keeping an eye on your pensions that you take a hands-off approach to managing.
Think of any pension as a bank account with money in it. Don’t lose sight of your money. All those different pots will eventually end up in your real bank account.
Take the time to make sure you’ve accounted for any pensions you think you’ve had during your working life. And going forwards, note down the basic details of any new pensions so that you don’t end up with a forgotten pension that goes unclaimed.