There was a time when the average worker left school, joined an employer and worked his or her way up. When retirement time came round, they could have clocked up half a century with the same employer, which made it very easy to calculate their pension.
But the world has moved on. The introduction of auto-enrolment, in which all eligible employees are automatically enrolled into a company’s scheme, makes it all the more likely that we may have built up pension pots with all those employers.
At Continuum we are looking at what you can do with them.
It’s your money
Even if you were only with the firm for a short while and it happened many years ago, any money you have saved into a company pension scheme remains yours whether you still work there or not.
You can track it down fairly easily. The first step is to get in touch with them with the dates when you were employed and your NI number. They should be able to tell you if you had a pension with the business, the name of your pension provider and policy number.
You could be in for a pleasant surprise. You may only have made a small contribution, but a few decades of compound interest can work wonders.
But the next question is what you should do with it. You may be entitled to the money, but the rules of the pension scheme and those of HMRC may dictate how you should go about using it.
Can you take it as cash?
If you plan to cash in your whole pension, remember that only the first 25% will be tax-free and you must pay income tax on the remaining 75%. If you have built up a big pension with an old employer this could mean you end up with a steep tax bill.
Of course, it might still be tempting, when you discover the actual size of a pension pot that you had all but forgotten, to think about cashing it in, and treating it as a windfall.
Unfortunately, you will only be able to do this if it was the right type of pension – and it may not be advisable in any case.
If you’re aged 55 or over, (57 for anyone born in 1970 or later) and in a defined contribution scheme from your old employer which allows it, you may be able to cash in that particular pension pot. Not all company schemes will offer this option, though, in which case you may need to transfer your savings to a different type of pension which does.
If anyone tells you that you can cash in a pension with an old employer before you are 55, it is likely to be a scam. There are substantial tax penalties for making an early pension withdrawal, unless you have to stop working because of ill health.
However, if the total value of all your pension benefits is less than £30,000, you may be able to take them as a one-off lump sum via what is known as ‘trivial commutation’. You will only be able to do this if your pension scheme allows it and you are aged at least 55.
Getting some expert help
Some expert help negotiating the tax and regulatory minefields could be crucial if you want to make the most of your old pension pots.
Rather than cash them in, you may want to consolidate your pension pots, to avoid paying multiple management charges, and swelling your eventual retirement income. But your pension is too important to leave to chance and you need to get some expert help to understand the possibilities.
At Continuum we can help you look at your pension arrangements, and ensure that they are working at their best for your future, and help find ways to make your existing pension savings work harder.
Finding lost pensions could be just one aspect of a full pension review that leaves you a great deal better off – and your prospects for the future a great deal brighter.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable retirement strategy, you should seek independent financial advice before embarking on any course of action.
A pension is a long term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Pension income could also be affected by interest rates at the time benefits are taken.
Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits.
Accessing pension benefits is not suitable for everyone. You should seek advice to understand your options at retirement.
The Financial Conduct Authority does not regulate taxation advice.
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