Older Pension Warning: Could Yours Be Falling Behind?

If you’ve been enrolled in a pension for years – perhaps because it’s one you’ve kept from an old job, or it’s just one you set up a long time ago and haven’t looked at recently – it may be worth giving it a check.

The Financial Conduct Authority (FCA) has warned that people with older, closed pension products could be getting poorer value compared to people with newer pension products.

This recent FCA review found that some older pensions have complex charging structures, outdated product designs and, in some cases, poorer investment returns. It’s also worth remembering that higher fees eat into your returns over time, so the longer you’ve had a pension, the greater the impact of higher-than-necessary fees.

That doesn’t mean your old pension is necessarily a bad one and you should be transferring it. But it does mean that “I’ve had it for years, so it must be fine” isn’t a safe assumption.

How to find out if your older pension is failing you

There are a few things worth checking – and it’s not as tricky to find these details out as you might think.

• 1. Find out exactly what you have

If you’ve changed jobs over the years, you may have several pension pots scattered across different providers – and it’s surprisingly easy to lose track of them.

If you’re not sure where an old pension is, you can use our completely free Pension Finding Service to track down any pensions you’ve lost touch with or forgotten about.

• 2. Check how your pension has performed

Don’t just look at whether the value of your pension has gone up. What really matters is how its investments have performed after taking charges into account, and how that compares with other pension funds with similar goals and objectives.

Our free Pension Performance Checker tool will help you see how your pension is performing and whether it is delivering good value for you and getting the returns over the long-term that will allow you to retire when and how you want.

Remember that investment performance will vary from year to year, and past performance isn’t a guarantee of what you’ll get in the future. The aim isn’t to find the pension that happened to have the highest return last year – it’s to understand whether yours is invested in a way that will allow you to retire in the way you want, and that it’s not costing you more than it should.

• 3. Check the charges

Even a small difference in charges can make a big difference to your overall pension pot when they’re eating into your returns over several decades.

Look for the total cost of your pension, including any charges on the pension itself and the funds you’re invested in. Older products can sometimes have particularly complicated charging structures, which is one of the issues the FCA has highlighted. If you have questions, ask your pension provider to explain the fees to you. And consider professional, independent advice if you’re not sure. Our Independent Financial Adviser could be able to help. You can find more information on how to contact him here.

• 4. Find out what you’re on track to receive in retirement

When it comes to retirement planning, the most important question isn’t necessarily “How much is in my pension pot?” It’s: “Will this give me enough income for the retirement I want?” You might need some help from an independent financial advisor to work this out as it can be a complex calculation that must be tailored to factor in your ideal lifestyle in retirement, your life expectancy and other changing personal and family circumstances.

Your current pension pot is only part of the picture. How much you will eventually have will depend on things like how much you’re contributing and how much more you could afford to contribute, how your investments perform, how long you keep saving and how much you eventually take as an income.

That said, if you want a simple figure to help you get started, our free Pension Calculator can give you an idea of what your pension could be worth in future and help you work out whether you’re on track.

• 5. Don’t panic, but don’t ignore it either

The FCA isn’t saying that everyone with an old pension should transfer it to a new one. Your older pension may be serving you perfectly well, and transferring a pension isn’t automatically better. Some older pensions have valuable features or guarantees that you could lose by moving them. So, as with most things, a knee-jerk reaction isn’t the best approach.

Instead, think of this as a prompt to find out what you actually have – and whether it’s doing the job you need it to do, and charges reasonable fees.

It’s well worth a few minutes of your time. Your pension could be one of the biggest assets you ever build and decisions now could be the difference between a comfortable retirement and an anxious one.