PENSION POTTY
Here’s our tips to protect your pension from rip-off fees as victims lost £91k on average to saving scams last year
The Sun found many unsuspecting workers are paying far too much in charges
CROOKS are fleecing us out of thousands of pounds of retirement savings – but so are some big-name firms that look after our pension pots.
City watchdogs have revealed that victims of sophisticated scams lost an average of £91,000 each last year to crooks.
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But even if you do not fall prey to fraudsters who promise huge returns on your retirement savings, you could still lose thousands to rip-off charges by your pension provider. Extortionate fees can reduce your pension pot by as much as £40,000 in some cases seen by The Sun — and lengthen the time you have to continue working.
Charges depends on the type of pension you have. There are two main types — defined benefit and defined contributions. Defined benefit pensions, also known as final salary schemes, are where you get a specified income at retirement.These are generally really good deals offered by employers, with the running costs paid by them.
A defined contribution pension is where you build up a pot but the amount you get when you retire is not specified in advance. You, and your employer if it is a workplace pension scheme, pay into your pot each month and the money is invested. The final value will depend on the sums paid in, the charges and the performance of the investments.
The good news is that since 2015, charges on workplace pensions must be capped at 0.75 per cent a year. You may pay more if you choose one of the bespoke investment funds rather than your plan’s default funds.
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If you have a private pension, though, or an old workplace pension you no longer pay into, it is worth looking at its charges. The percentage taken per year could make a huge difference to the value of your funds and this affects the monthly pension you buy with it at retirement.
If you have a simple pension, you should not be paying more than one per cent, although some providers charge a lot less. But exclusive data obtained by The Sun found many un-suspecting workers are paying far more in charges — and it costs them thousands of pounds in precious retirement money.
Pension adviser explains how to make sure you have the income you want when you retire
The analysis by Profile Pensions, which consolidates people’s old pension pots, looked at more than 13,000 individual funds from old workplace and private schemes — most of which had been abandoned as people moved into new jobs and stopped paying into them.
It found people aged 45 to 55 paid an average 1.13 per cent charge and nearly half were paying more than 1.25 per cent. It may sound tiny, but it can make a huge difference to your retirement income.
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For example, a typical fund of £25,422 growing by six per cent per year would be worth £51,877 after 15 years with a charge of 1.13 per cent. At 0.45 per cent, the same pot would be worth £57,159. But if you want to leave your provider, bear in mind there may be hefty penalties, although it may still be worth your while.
From the age of 55 there is a 1 per cent cap on transfer fees.
How to avoid high charges
HERE are tips to stop you paying over the odds on your pension:
- If you have a defined benefit pension with your employer, keep it where it is. The exception to this is if you have a short life expectancy.
- Find your old pension policies and track down who is looking after them. Get help from the Pension Tracing Service, the Pensions Advisory Service and Google.
- Get a statement from all of them of what your pot is worth, when the retirement date is, what it is worth at retirement and what it is worth if you cashed it in or transferred it today.
- Be aware that defined contribution pensions come in many shapes and sizes and there will be charges.
- Once you have got these figures, seek advice. You will need an expert – get guidance from the Pensions Advisory Service.
- The service will help you work out what to do – or help you find an adviser.
- Think carefully. Cashing in your policies, or transferring elsewhere, can be like selling your Picasso in a car boot sale if you get it wrong.
Pensions expert Henry Tapper found he could save himself £40,000 by switching one of his old pensions to a fund with lower charges. The pot, held by Prudential, was worth £51,000 and had a 2.5 per cent annual charge.
He worked out that if he switched it to his Legal and General workplace pension, which only charged him 0.3 per cent, his pot could increase from £110,661 to £150,903 in the 11 years until he reached 65, assuming he got the same investment return.
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You can use companies such as Profile Pensions to consolidate your pots for you, but bear in mind they charge fees of up to 2.95 per cent.For this reason, first go to the Pensions Advisory Service, which gives free and impartial guidance. It may suggest you find a financial adviser and will talk you through how to do this.
There are plans for a new price comparison site for pensions, called AgeWage, to help people work out the best provider for their needs.
Mr Tapper, who is behind the project, said: “It should be easy for people to get the best deal for their pensions — but at the moment there’s no straightforward way of comparing the costs.”
- Have you been ripped off or scammed? Email your money worries to [email protected]
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