Urgent warning over rip-off ‘zombie’ charges hitting pension pots that could impact thousands – how to avoid it

SAVERS with money in old pension pots from previous jobs risk losing thousands of pounds in rip-off charges.

So-called “zombie” pension funds are feeding off the savings of workers who put money into workplace pensions years ago.

These old-style schemes are closed to new joiners, but continue to drain cash from their members through huge management fees.

Laura Purkess explains how to move your savings to newer low-cost plans and boost your retirement pot by thousands . . . 

Are you feeding zombies?

If you’ve got money sitting in an old work pension from years ago, or maybe have several pots from different jobs — zombie fund charges could be eating away at your savings.

Modern workplace pensions typically charge between 0.2% and 0.4% a year for managing your money, according to financial advice firm Quilter.

That amounts to between £2 and £4 for every £1,000 you have in pension savings.

But before 2015, when new rules came in capping charges at 0.75% for new schemes and new savers, fees were often much higher.

It’s common for savers who have old workplace pensions to be paying charges of up to 1.5%, Quilter said.

But in the worst cases — for schemes dating back to the 1980s and 1990s — fees can be as much as 2.5%.

That means that you’d pay £25 a year for every £1,000 in savings.

Helen Morrissey, head of retirement analysis at broker Hargreaves Lansdown, says: “High charges from older pensions gnaw away at your pension value and over time they can make a big dent in your pot.

"Moving all your pensions into one pot can slash the fees you pay and mean you retire with a much larger sum saved.

“However, it’s vital you check that you aren’t losing out on valuable benefits by doing so and seek advice if necessary.”

How to switch?

Putting all your pension pots into one low-cost scheme can save thousands.

Move a £10,000 pot from one of the priciest schemes to the cheapest and after 20 years you could be almost £9,000 better off in retirement — without paying in another penny.

That’s according to calculations by advice firm Candid Money assuming five per cent annual growth.

Your pot would be worth £25,300, instead of £16,400 if you’d kept it where it was.

Move a £50,000 pot to a cheap scheme and you would be £45,000 better off over the same time-frame.

Mary Green, an independent financial adviser at Rosewood Financial Planning, says: “Not many people have a job for life these days and so they tend to accumulate old pensions, which don’t necessarily add up to much on their own.”

The first step is to track all your pensions down using any paperwork you can find and ask your provider how much you have saved and what charges you’re paying, she adds.

Tom Selby, head of retirement policy at AJ Bell, says: “You could then move all your pension savings to the scheme with the lowest charges.