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THAT'S POTTY
Urgent warning over rip-off pension charges that could cost you THOUSANDS in retirement
We also explain the different types of pensions you can get
SAVERS could end up thousands of pounds worse off in retirement due to rip-off pension charges.
Brits who have worked multiple jobs over their career likely have cash sitting in old workplace pensions - but the charges could be eating away at their retirement savings.
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Experts warn that it is easy to lose track of old pension pots, but doing so could see thousands of pounds wiped off their pension savings.
In 2015, the fee that new pension schemes could charge was capped at 0.75%, but this cap did not apply to anyone who joined a scheme before this date.
So, anyone in one of those old schemes could be paying a high charge without even realising.
However, there is a solution that means that you can keep more of your hard-earned cash.
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Combining all your old pensions into one newer pot with a lower fee could save you thousands of pounds, boosting your fund for when you come to retire.
Combining your pots means moving all of your old pensions into one newer pot with lower charges.
To give you an idea of the kinds of benefits you can get from consolidating, we obtained some figures showing four different-sized pensions.
The difference might not seem like much, but over the long-term it can cost you thousands of pounds in retirement
Ian Cook
Data provided exclusively to The Sun by wealth firm Quilter shows how much each pension would be worth over 20 years assuming a 5% growth rate.
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Quilter said savers in old pots are often charged fees of 1%, or in some cases even higher, which is a lot compared to modern workplace pensions.
By switching that into a new scheme charging 0.25%, you could save thousands.
What are the different types of pensions?
For example, if you had a £10,000 pension and continued to keep the cash in a pension scheme charging a 1% fee, after 20 years you would have £22,225.
If you switched that pension to a provider offering a 0.25% fee, after 20 years you would have £25,808 - meaning you would be £3,583 better off for retirement.
If you had a £50,000 pension at a 1% rate you could expect to get £111,129 after 20 years.
However, if you consolidated to a 0.25% rate, you would be a whopping £17,914 better off as your predicted pension would be £129,043.
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Ian Cook, chartered financial planner at Quilter, said: "As the data shows, consolidating your pensions down into one can save you considerable sums of money over the long-term.
"The difference is charges may not seem like much but over the long-term, this can compound and cost you thousands in your retirement."
And there are other reasons you might opt to combine your pensions besides just the charges.
Becky O'Connor, director of public affairs at provider PensionBee, explained: "As well as reducing the risk that you will lose track of old pots, you might be able to move to a pension that better suits your needs.
"For example, if you are about to start taking an income from your pension, or you might want a pension that better matches your values."
How do I consolidate my pension?
Consolidating your pension is a fairly straightforward process.
The most time-consuming part, if you have multiple pensions, could be tracking down your old pots.
There are several services that can help you if you can't remember what pensions you have or where they are there are.
For example, the government has a online or you can call 0800 731 0193 for help.
Pension provider AJ Bell also has a to locate old pension pots - visit its website to get started.
You can also try ringing your old employers' HR departments to ask for the details of your scheme.
Once you have tracked down your pensions, ask each provider how much you have saved and what charges you are paying.
Once you have located all of your pots the hard work is done and your newly chosen pensions provider should do the rest of the work for you.
There are some things to consider before consolidating your pensions, such as whether you might be giving up any benefits by switching out of a scheme.
Mr Cooke explained:" It is crucial to understand what your pension gives you as cost isn’t the be-all and end-all.
"Some pensions may offer an earlier age you can begin taking withdrawals or offer guaranteed annuity rates.
"If you transfer out of these, you will lose these benefits and as such they need to be weighed up.
The financial expert also recommended speaking to a financial adviser who can help you calculate any costs or risks associated with consolidating your pensions.
What to look out for
While the savings you can get from consolidating your pensions might be attractive, you should double check you understand the new schemes' fees.
Make sure you have done all of the calculations and taken into account any applicable fees to get a clear picture of what you are paying now compared to what you will be if you switch to a new scheme.
Ms O'Connor said: "Bear in mind that some pension providers charge percentage fees and some charge flat rate fees.
"You might need to convert a % fee into pounds and pence based on your total pot size, or vice versa do a proper comparison."
Before consolidating, you should also think about what you want your pension to do as well as the value of the money on offer.
It might not be beneficial to switch to a lower-fee plan if the plan goes on to deliver lower investment returns, for example.
Pension schemes invest your cash with the aim of growing it over time, and some schemes may have investments that are performing better than others.
Ms O'Connor said it's worth considering performance and working out whether you are likely to get a better deal overall with a new pension.
Ask the scheme for information about their investments' performance if you're not sure.
Some pensions may also come with benefits such as offering you an earlier age that you can start taking out withdrawals, or guaranteed annuity rates.
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If you transfer out of these you will lose these benefits and therefore will need to weigh up if that works for you or not.
Your pension scheme can tell you if you would lose any benefits by leaving the scheme.
What are the different types of pensions?
WE round-up the main types of pension and how they differ:
- Personal pension or self-invested personal pension (SIPP) - This is probably the most flexible type of pension as you can choose your own provider and how much you invest.
- Workplace pension - The Government has made it compulsory for employers to automatically enrol you in your workplace pension unless you opt out.
These so-called defined contribution (DC) pensions are usually chosen by your employer and you won't be able to change it. Minimum contributions are 8%, with employees paying 5% (1% in tax relief) and employers contributing 3%. - Final salary pension - This is also a workplace pension but here, what you get in retirement is decided based on your salary, and you'll be paid a set amount each year upon retiring. It's often referred to as a gold-plated pension or a defined benefit (DB) pension. But they're not typically offered by employers anymore.
- New state pension - This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £203.85 a week and you'll need 35 years of National Insurance contributions to get this. You also need at least ten years' worth to qualify for anything at all.
- Basic state pension - If you reach the state pension age on or before April 2016, you'll get the basic state pension. The full amount is £156.20 per week and you'll need 30 years of National Insurance contributions to get this. If you have the basic state pension you may also get a top-up from what's known as the additional or second state pension. Those who have built up National Insurance contributions under both the basic and new state pensions will get a combination of both schemes.
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