THE economic crisis has sparked a sharp rise in the number of people asking pension companies for an update on the likely state of their retirement funds. Pensions consultant Aon this week reported that in the past year 71 per cent more workers in defined contribution (DC) company pension schemes have asked for quotes showing the projected value of their pension pot at retirement.
Few people take action in response to the information they are given by their pension provider, suggesting they merely want to know where they stand, or are unsure how to take action in response to the answers they are given.
But most Scots with w
orkplace pensions remain in the dark, often because of problems obtaining statements for pensions held from previous jobs, according to research given to The Scotsman by Aegon.
In a survey of nearly 1,500 adults between the ages of 30 and 65, the Edinburgh-based insurer found that nearly half of all Scottish respondents had accumulated multiple pensions in their working life. Of those, 17 per cent had three or more pensions from different companies.
About 40 per cent believe they would benefit from having their various pensions under one roof, with 30 per cent aware that this would mean they would pay fewer charges. Rolling everything into one big pension pot can also improve the options offered at the point of retirement, said Rachel Vahey, Aegon's head of pensions development: "Apart from the simple fact that one pot of money is much easier to deal with administratively, a larger pension pot is also likely to lead to a better annuity deal at retirement, as higher fund values usually receive higher annuity rates."
Vahey added that those reluctant to consider consolidating their various pensions should not be intimidated by the process involved.
"If you have lost contact with previous employers or providers and are no longer receiving your yearly pension statements, you should contact them and ask for a current fund value," she advised. "Even if you can't remember details of your accumulated pension arrangements, the pension tracing service can help you track down the details."
But others believe the work required to track down old pensions discourages investors. Douglas Baillie Ltd, an independent financial adviser in Perth, is the company behind comparemypension.com, which helps investors find out how much their pensions are worth.
The free service provides a report summarising existing benefits and costs and indicating whether investors are better off elsewhere. It has experienced a surge of interest since its launch earlier this year and is currently reviewing about 600 pension plans.
Mike Amphlett, a partner in Comparemypension, said that not all pension companies provide annual statements, and there is little consistency among those that do. One pension provider recently sent Amphlett a 144-page document in response to a fund projection request made on behalf of an investor.
Getting the right information can be difficult for the average pension holder, Amphlett believes. "If you are looking for a pension from two jobs ago the paperwork is inevitably in a shoebox or a carrier bag. So getting the details and knowing the right questions to ask in order to get the right information back can be a tall order."
Most pension holders only need to find out the current valuation of their pension, where funds are invested, the charges and the projected value at retirement. In many cases, said Amphlett, the information provided in response to their inquiries offers sufficient incentive to consider transferring or consolidating pensions.
"It is not so much to do with performance, as projections are based on industry averages, but the inbuilt costs," he explained. "The wonders of compound interest mean that the further from retirement you are, the bigger the impact of high charges."
Most people who approach Comparemypension for help are surprised to learn that their pension could be more effectively invested elsewhere, Amphlett claimed. "There is a perception that pension providers are all the same. But it is not the cosy market that it used to be, people don't realise how competitive it is now."
The argument for not only looking under the bonnet of your pension investments, but also doing a bit of tinkering may be compelling, but action should be considered carefully and preferably with professional advice, said Paul Lothian, chartered financial planner at Verus Financial Planners.
"Such consolidation can have significant client benefits, but care should be taken on transfer/exit penalties and new charges in consolidating vehicle."
• For more information call the pension tracing service – 0845 600 2537 or visit
www.thepensionservice.gov.uk.
The full article contains 774 words and appears in The Scotsman newspaper.
