SAVERS with money in old pension pots from previous jobs risk losing thousands of pounds in rip-off charges.
So-called “zombie” pension funds are feeding off the savings of workers who put money into workplace pensions years ago.
These old-style schemes are closed to new joiners, but continue to drain cash from their members through huge management fees.
Laura Purkess explains how to move your savings to newer low-cost plans and boost your retirement pot by thousands . . .
Are you feeding zombies?
If you’ve got money sitting in an old work pension from years ago, or maybe have several pots from different jobs — zombie fund charges could be eating away at your savings.
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Modern workplace pensions typically charge between 0.2% and 0.4% a year for managing your money, according to financial advice firm Quilter.
That amounts to between £2 and £4 for every £1,000 you have in pension savings.
But before 2015, when new rules came in capping charges at 0.75% for new schemes and new savers, fees were often much higher.
It’s common for savers who have old workplace pensions to be paying charges of up to 1.5%, Quilter said.
But in the worst cases — for schemes dating back to the 1980s and 1990s — fees can be as much as 2.5%.
That means that you’d pay £25 a year for every £1,000 in savings.
Helen Morrissey, head of retirement analysis at broker Hargreaves Lansdown, says: “High charges from older pensions gnaw away at your pension value and over time they can make a big dent in your pot.
"Moving all your pensions into one pot can slash the fees you pay and mean you retire with a much larger sum saved.
“However, it’s vital you check that you aren’t losing out on valuable benefits by doing so and seek advice if necessary.”
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How to switch?
Putting all your pension pots into one low-cost scheme can save thousands.
Move a £10,000 pot from one of the priciest schemes to the cheapest and after 20 years you could be almost £9,000 better off in retirement — without paying in another penny.
That’s according to calculations by advice firm Candid Money assuming five per cent annual growth.
Your pot would be worth £25,300, instead of £16,400 if you’d kept it where it was.
Move a £50,000 pot to a cheap scheme and you would be £45,000 better off over the same time-frame.
Mary Green, an independent financial adviser at Rosewood Financial Planning, says: “Not many people have a job for life these days and so they tend to accumulate old pensions, which don’t necessarily add up to much on their own.”
The first step is to track all your pensions down using any paperwork you can find and ask your provider how much you have saved and what charges you’re paying, she adds.
Tom Selby, head of retirement policy at AJ Bell, says: “You could then move all your pension savings to the scheme with the lowest charges.
“If you don’t already have a new pension to transfer older ones to, you can set one up online in a matter of minutes.”
You can compare different costs using a calculator, such as on website Candid Money.
Ask your employer if it offers any free pension guidance.
Or you could find an independent financial adviser at Unbiased.co.uk — but you’ll have to pay a fee.
Mr Selby adds: “If you do decide to switch, the new provider you’ve chosen should be able to do most of the legwork.”
If you have lost the details of your pension schemes, you can ring your old employers’ HR department.
The Government has a website that helps you track down your details for your pension provider.
Visit: gov.uk/find-pension-contact-details or call 0800 731 0193.
When to leave it put
You shouldn’t combine your pensions if you have any specific benefits attached to your pension pots, experts warn.
These may be called “enhanced”, “safeguarded” or “guaranteed” pensions and could be lost if you leave the scheme.
For example, your scheme may offer a guaranteed income when you retire, or it may have a “protected retirement age”, which means you can access your pot before the normal minimum pension age.
Your existing provider should be able to tell you if you have any of these perks.
Ms Green said: “You should also weigh up your savings with what you might have to pay in exit fees for leaving the scheme.”
‘Kerry should merge pots to save £6,000’
Before Kerry Hussain launched her online art shop Art For The Soul, she worked several jobs in the media, during which time she paid into four different pension pots.
We asked advice firm Quilter to look at her paperwork and it found £20,297 split between four pots, and annual charges on these ranged from 0.3% to 0.95%.
Its advisers calculated that if Kerry, 46, from London, moved all her pension pots to the scheme with the lowest charge, she would have £70,727 after 20 years, based on 5% annual growth.
If she kept them all where they were, she would have just £64,775.
Kerry says: “I’m shocked that fees could be eating into my pension by so much. This has definitely motivated me to take action.”
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