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Why Bother to Find a Lost Pension?

Richard Beardsworth Pension Expert

By Richard Beardsworth.

Independent Financial Advisor

More Reading on Cashing In Pensions...

Even more alarming is the fact that more than 60% of those workers with lost pensions would not bother to try to find them at some point in the future. Given the current state of the economy and the inadequacy of the state pension, it is difficult to understand why anyone would not want to find a lost pension. Yet there are people who do not seem to care.

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Finding pensions you may have lost may not be the easiest task in the world, but it is not difficult either. For example, consumers can engage a certified financial advisor with experience in pension tracing to help them out. Those who prefer a DIY option can utilise the free Pension Tracing Service provided by the Government. With the necessary information to hand, it is entirely possible to find out exactly what you have out there by way of personal and workplace pensions.

Still not convinced? Here are the five main reasons you should do your best to find lost pensions:

Reason #1 – Planning Your Retirement Income

The whole point of having a pension is to provide the income you are going to need in retirement. Like it or not, the state pension alone is not going to offer you enough to enjoy a reasonably comfortable lifestyle. This means you have to save on your own. However, how much will you need? How much do you have to begin saving now in order to reach your goals? Planning for your future requires knowing where you are right now.

Finding all of your lost pensions now enables you to know where you stand for your future. For example, let us say you already know you will need a pot of at least £400,000 to live the kind of lifestyle you want to in retirement. Let us also say you have three smaller pension pots worth a combined total of £30,000. If you do not know those pots exist, you will be under the false impression that your need is greater than it is.

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Reason #2 – Planning for Your Eventual Death

Any funds left in a pension pot when you die have to go somewhere. For most of us, the goal of all of our assets going directly to our beneficiaries is of prime importance. Nevertheless, that is not possible if you do not know the total sum of your assets. You cannot possibly plan for where you want your money to go if you do not know it exists.

Of equal importance is the fact that you may have named specific beneficiaries when you first enrolled in a lost pension. What if your beneficiary preferences have changed? What if those beneficiaries have already died themselves? Not updating beneficiary information could jeopardise the money in any lost pension. There is no way to account for this if you do not know where your pensions are.

Reason #3 – Taking Advantage of New Pension Rules

The new pension rules announced with the 2014 budget give pension savers more control and flexibility over their money than ever before. Consider the rules for trivial commutation as just one example. You can make use of trivial commutation to combine three smaller pension pots into a single, tax-free lump sum payment.

For example, let us say you have two smaller pots from previous employers worth a combined total of £15,000. New trivial commutation rules allow you to cash in both pensions and take the money tax-free as long as you are at least 55 years old. You can do this regardless of any other pension income you might have. The thing is, you have to find a lost pension before you can apply trivial commutation to it. You cannot cash in a pot you do not know exists.

Reason #4 – Developing an Investment Strategy

It is no secret that pension schemes do not provide as great a return as some other kind of investments. As a case in point, pension reform has led to speculation that a fair number of pension savers will eventually cash in their pots in order to put their money in buy-to-let property. The return on buy-to-let property is seen as far more attractive than what could be earned by leaving money in a pension scheme.

If you find a lost pension you were previously unaware of, it might not be vital to achieving the retirement goals you have already set for yourself. Such a pension would be an ideal candidate for investing elsewhere. Choosing to forget about that pension because finding it is too much bother is like throwing money down the loo. Why do that? The money belongs to you; you might just as well find it and put it to good use.

Reason #5 – Increasing Your Earning Power

Do you participate in a workplace pension now offered by your employer? If not, that may change thanks to the new rules for auto enrolment. Here is what you need to know in this regard: the more money you have in your pension pot at any given time, the more earning power that pot possesses. It is just common sense.

Let us assume your current workplace pension is earning 5% on an existing balance of £30,000. Let us also assume you have a £10,000 lost pension out there in a scheme that is earning only 4%. By finding that lost pension and transferring it into your current workplace scheme, you would end up with £40,000 earning 5%. Let's do the maths:

  • 5% on £30,000 = £1,500
  • 4% on £10,000 = £400
  • 5% on a combined £40,000 = £2,000

By combining both pots together under this scenario, you earn an extra £100 per year. Over a 20-year investment, that works out to an additional £20,000. Combining multiple pension pots can go a long way toward helping you reach your financial goals. Once again, you cannot combine multiple pots unless you know they exist.

In Summation...

So, what have we learned from these five reasons? We have learned that there are quite a few advantages to making the effort to find lost pensions. By extension, we have also learned there are some distinct disadvantages to ignoring said pensions. We assume you prefer the advantages to the disadvantages.

To find a lost pension is to take full advantage of money that rightfully belongs to you, which leads us to one final reason we did not list above: using all of the money that is legally yours. Imagine, for just a minute, living for an additional 15 years after retirement yet not being able to enjoy some of your lifelong hobbies for lack of income. Then imagine how your spouse would feel, after your passing, to find out there was a lost pension you did not know about. Had you taken the time to search for it, that lost pension could have supplied the money needed to enjoy those lifelong hobbies.

If you need help to find a lost pension then do not hesitate to ask a certified financial advisor. You can search for lost pensions on your own, but a financial advisor may have some additional experience and knowledge that will increase the chances of a successful search.

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