Pense
Old workplace pensions can quietly drain value through high charges, mismatched investments, and forgotten guarantees. Find out what a pension review can uncover, and why it matters.
If you have worked for more than one employer over the course of your career, the chances are you have left behind at least one pension along the way. Many of those old workplace schemes, often called legacy pensions, are quietly ticking along without ever being looked at. A pension review can shine a light on exactly what you have, what it is costing you, and whether it is still working as hard as it should be.
What Is a Legacy Workplace Scheme?
A legacy workplace pension is any scheme that was set up through a previous employer and has since been left dormant, meaning you have stopped contributing and are simply waiting for retirement. These pots accumulated particularly quickly from the 1980s onwards, as job mobility increased and automatic enrolment from 2012 brought millions more workers into pension saving. Over decades of career changes, it is quite common for someone to have three, four, or even more of these dormant pots.
What High Charges Could Be Costing You
One of the most significant findings from a pension review is the level of charges being applied to an old scheme. Pension charges have fallen substantially over the past decade, largely as a result of regulatory pressure and the introduction of a 0.75% charge cap on default funds used by auto-enrolment schemes. However, this cap does not apply to all legacy pension contracts, particularly those set up before 2015.
The Financial Conduct Authority (FCA) has previously found that savers in older defined contribution schemes can be exposed to annual management charges well above 1%, with some paying over 3% per year, a figure that can dramatically erode the value of a pot over time. Even a difference of 0.5% per year between an old scheme and a modern workplace or personal pension can amount to tens of thousands of pounds lost over a 20- to 30-year period.
A pension review will identify the exact charges being levied on your legacy pots and allow you to compare them against what is currently available in the market.
Investment Funds: Are They Still Appropriate?
When you left a previous employer, your pension pot was almost certainly moved into a default investment fund, often a so-called "lifestyling" fund that gradually de-risks your investments as you approach a standard retirement age. The problem is that default retirement ages in older schemes are frequently set at 65, and the investment strategy may have already begun to de-risk your pot even if you are still decades away from actually retiring.
A pension review can assess whether the fund your money is sitting in reflects your current attitude to risk, your intended retirement age, and your plans for how you will access your pension, whether through drawdown, an annuity, or a combination of both.
Defined Benefit Schemes: Understand What You Have Before You Act
Not all legacy workplace pensions are defined contribution (DC) pots. Some older schemes, particularly from larger employers, public sector roles, or those dating back to the 1980s and 1990s, may be defined benefit (DB), sometimes called final salary schemes. These pay a guaranteed income in retirement based on your salary and years of service, and they come with significant protections.
A pension review is essential before making any decisions about a DB scheme. The guaranteed income these schemes provide is extremely valuable, and transferring out of a DB scheme worth more than £30,000 requires regulated financial advice by law. A review will help you understand the full value of your entitlement, including any inflation-linked increases and spouse or dependant benefits that come with it.
Consolidation: When It Makes Sense and When It Does Not
One option a review may highlight is pension consolidation, bringing multiple old pots together into a single plan. This can simplify your retirement planning, reduce the administrative burden of managing multiple schemes, and in many cases lower the overall charges you are paying.
However, consolidation is not always the right answer. Some legacy schemes carry valuable guaranteed benefits, such as a guaranteed annuity rate (GAR), which commits the insurer to providing an annuity at a rate set decades ago when rates were far more generous than today. Transferring a pot with a GAR out of the scheme would mean giving up that guarantee permanently. A thorough review will identify whether any such protections exist before any transfer is considered.
The Pensions Dashboard and Tracing Lost Pots
The government's pensions dashboard programme is working to give all savers a single view of their pension entitlements across multiple providers. In the meantime, a pension review with a qualified adviser can help trace pensions that have been lost or forgotten, using the government's Pension Tracing Service and direct contact with former employers.
Taking Action
A pension review is not a commitment to do anything. It is simply an opportunity to understand what you have. But without one, legacy workplace pensions can sit for years, accruing charges, sitting in poorly matched funds, and representing a retirement income that is less than it could be.
If you have old workplace pensions that have not been reviewed recently, speaking to a regulated pension adviser is a sensible first step towards making sure every pound you have saved is working in your best interests.
This article is for information purposes only and does not constitute regulated financial advice. If you are unsure about any aspect of your pension arrangements, please seek guidance from a qualified financial adviser.