Are you missing ￡13,000?
Zoe Taylor MSc Finance, FPFS, LLAA
A refreshingly enthusiastic approach to managing your finances.
What would you do if you found ￡13,000 that you didn't know you had?
You actually could be sitting on this much extra cash and not know it, as there is around ￡20bn in unclaimed pension pots in the UK, averaging ￡13,000 each.
New auto-enrolment rules mean that each job now starts a new pension pot, resulting in the average person having around 11 jobs over their lifetime.
People change jobs and move homes so often that it’s easy to lose track of old pensions, and with providers changing names and merging, it's easy to see how these things happen.
Use of the term ‘lost’ to describe these pension pots is controversial, as this could be interpreted to mean lost forever and unlikely to be reunited with the owner, rather than temporarily misplaced, as is really the case.
Here are five tips to help you find any hidden money and fine-tune your retirement savings strategy.
Do a stock take
To ramp up your pension savings, you don’t necessarily have to save more (although it’s great if you can). You can make the money you already have work smarter and harder. Lots of us have numerous savings accounts and pensions scattered about, and there’s nothing wrong with this as long as they are all building wealth for you.
To find out if they are, start by doing an inventory of all your assets and savings. Brainstorm everything you can think of – you could even draw a diagram. Be sure to include your house, any ISAs, current and old workplace or personal pensions, and things like Premium Bonds.
Track down lost pots
The government has a free pension tracing service that can help you track down lost pension pots you may have from previous jobs. Once you’ve found everything, look at where your money is invested.
You may have a pension pot from 10 years ago that was growing back then but is now dragging its feet. Your financial goals may have moved on, and you might feel differently about risk. You might still be paying fees and charges on multiple pension pots to which you are no longer contributing. All of this can be costing you money. It’s also a good idea to speak to a financial adviser to check that you’re making the most of the pension allowances you’re entitled to, and to explore consolidation options to help you keep track of all your savings.
Consider your cash
Ordinarily, it’s wise to keep at least some funds available, in order to cover short-term expenditure and for any unforeseen eventualities.
After that, any surplus cash that is likely to be left in the bank for 5 years or more, leaving it in the bank will probably see it grow only very slowly; in fact, it may well cause the value to go down over time, due to interest rates trailing the currently high levels of inflation.
Your purchasing power of cash will be lower today than it was a decade ago. That means you might want to invest some money, to give it the potential to grow above inflation.
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Mind the Gap
As well as gathering information about your existing savings, check your entitlement to the State Pension. This isn’t something you can take for granted – if you’ve taken a career break, parental leave or time out to care for elderly relatives, or been self-employed, you may have gaps in your National Insurance contribution record.
If you haven’t made enough National Insurance payments, you won’t qualify for the full State Pension. If you’ve missed any, you can top them up with voluntary contributions, but the danger is leaving it too late to catch up, as you can usually only top up for the last six years.
The State Pension is incredibly valuable (currently over ￡10,000 per annum), and makes up the cornerstone of most people’s retirement income, so make sure you don’t miss out. You can check your National Insurance record on the government’s website.
Inequality still happens for Pensions
If you’re a woman, you will certainly need to find any misplaced pensions. Why? The gender pension gap means your money needs to work even harder in the years leading up to retirement – by retirement age, the median pension wealth of women is about a third of men’s.
There are any number of physical, emotional and social demands placed on women throughout their lifetime that come with short-term financial ‘penalties’ and longer-term consequences. Women commonly encounter financial hurdles men don’t such as maternity leave, part-time work, caring responsibility and early forced retirement due to the menopause – enhancing the need for sound, longer-term savings strategies.
Plus, divorce can leave women out of pocket too. A recent Freedom of Information request (FOI) found that over five years, only 80,290 of the 602,491 divorces that were settled in court included a pension sharing or attachment order.
This indicates that not all pensions are being taken into account when settlements are made, meaning an unfair division of assets and a huge impact on quality of life in retirement.
If you find pensions complicated like so many others, and resort to just sticking the statements in the drawer, it might be time to seek professional financial advice to take control of your financial future, and get peace of mind that you are heading to a comfortable retirement.
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