Find out what your pension is worth

Published on Friday 20 March 2009 19:20

MORE than two thirds of workers approaching retirement do not know how much their annual pension will be, it is estimated.

The figure came from research by insurer Prudential, which found that falling savings and investments have wiped almost 2.9 billion off the income that workers retiring this year can expect from their pension. It said they are likely to get an average annual income in retirement – including income from assets such as property and savings – of 17,779, 884 less than workers drawing their pensions last year.

But perhaps more revealing was the disclosure that 36 per cent of those surveyed said they did not know what sort of income to expect from their pension in retirement.

But the success of one Scottish pension web service launched this month suggests the apparent lack of interest may be down to more than just apathy. The site, www.comparemypension.com, was launched by Perth independent financial adviser Douglas Baillie to make it easier for investors to find out how much their pensions are worth.

In its first two weeks, the free service attracted more than 600 registered users, the number that Baillie had expected after six months. Users simply have to select their pension provider(s) from a drop-down menu and give details, including their name and date of birth. The IFA then sends them a letter of authorisation that enables it to approach pension companies on their behalf. The result is a report summarising existing benefits and costs and indicating whether the customer is better off elsewhere. Any subsequent transfer advice given is where fees are charged.

"Even if they are OK where they are, at least customers are up-to-date and better informed," Baillie commented. "Statements from providers are not easy to read so we simplify it and give an idea of the options. If people want advice they only have to ask."

What has become clear is the extent to which people are unaware of the pensions they have, particularly those who have started plans with several previous employers. "They don't know what their plans are worth, who is managing them, what they cost and what they will be worth in future," said Baillie. "Whether your retirement is imminent or some years off, you can almost certainly get a better deal and increase your retirement income by thousands of pounds a year."

Most spectacularly, one client forgot about a 2,250 investment in a with-profits policy in 1977 – only to discover it is worth over 140,000. Not only that, but his wife had the same policy, so between them an investment of 4,500 transpired to be worth over quarter of a million.

"Just because your assets are out of sight and out of mind does not mean they are not working for you," Baillie pointed out.

A typical finding is that investors are being charged too much by their pension providers, particularly closed or "zombie" funds in which an estimated 190 billion is currently tied up. "The variation in charges from one pension provider to another, and particularly in old, closed pension funds, can be significant," Baillie commented.

This illustrates the importance of monitoring pension investments. However, a combination of opaque communications, complex arrangements and low accessibility deters many people from doing so, according to Baillie: "We have been staggered the response and there is a huge pent-up demand from people who want to know more about their pension."

So why don't more people inquire about their company pension investments?

Gordon Wilson, managing director of IFA Thomson Shepherd, also in Perth, believes it comes down to cost and complexity.

"I think that people fear pensions – they are perceived as opaque and complicated and, let's be honest, learning about pensions isn't what most of us want to spend our evenings a weekends doing," said Wilson.

He recommended that investors put some time aside to understand how their pensions are invested. "It is only through this process that you will ever know if you have any chance of meeting your goals for income in retirement," he explained.

"Individuals would benefit greatly if they only took the time to look under the bonnet and understand only three things: how the money is invested; how likely is it that it will achieve my goals; how much is being spent on costs and charges."