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POT LUCK
I made a common move to simplify my pension but it ended up COSTING me £2,000 – mistake to avoid or risk losing cash
Plus we reveal how you can track down lost pension pots
A MUM-OF-ONE has revealed how a common move to simplify her pension savings ended up costing her thousands of pounds.
Rymyni Adams-Taylor had been looking to consolidate three separate savings pots she'd had from several jobs since she was 18 years old.
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The 28-year-old from Birmingham told The Sun she had always been "put off" by the process of combining her workplace pensions.
But when a flashy advert popped up on Facebook from a pensions provider that promised to do all the hard work for her, Rymyni was intrigued.
She told The Sun: "Maybe it was my naivety, but I didn't know the process to combine my pensions and I had assumed it would be really time-consuming.
"So when the ad popped up saying 'leave all the work to us', I was sold that they'd basically do it all for me.
READ MORE ON PENSIONS
"Obviously that didn't go in my favour at all."
What she didn't realise, though, was that in exchange for the ease of changing providers, she would actually be slapped with huge fees.
The advert online hadn't explained any of the nitty-gritty details, including underlying charges.
Of course, it's worth noting that consolidating your pension pots is almost always a good idea.
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That way you're not stuck paying different fees for different pots.
In Rymyni's case, she was paying charges on three different pots, which were all eating away at her savings.
Pension fees and charges often take people by surprise. Research by life company Legal and General recently found that 69% of those approaching retirement age are unaware of the charges on their pensions.
What are the different types of pensions?
Each pension provider will take different fees in different ways and some may only be found buried in the small print.
Without reading this detail, you won’t know how much you’re paying.
When you join a new company, you are usually "automatically enrolled" into its workplace pension scheme.
You then contribute a percentage of your salary towards your pension each month - the minimum is 5% - while your employer contributes a minimum of 3% unless you opt-out.
The scheme levies a charge from your total savings every year to help cover its running costs.
For modern workplace pensions, this is capped at 0.75% of your total pot, although many charge less than this.
However, loopholes mean that some companies charge significantly more than that in hidden charges and transaction fees - which have no cap.
Examples of these fees include: an inactivity fee, a contribution charge, an exit fee, and consolidation fees.
Rymyni's new provider, a well-known company in the UK, was charging 3% for what is known as an annual management fee.
This does exactly what it says on the tin, it’s how you pay your provider for running your pension scheme and investing on your behalf.
The majority of firms charge between 0.25% and 1% for the same service, according to provider PensionBee.
Rymyni said: "It was only after doing some research that I realised that it definitely wasn't the best provider for me.
"I don't feel they were very transparent at all at giving the information that was needed - it was near impossible to find the breakdown of charges on the app."
In addition, she found because she was constantly directed to the app for all her queries, she was never informed about different investment options.
Had she been, she would have asked for higher risk investments that could potentially mean higher returns, which would have boosted her cash pot by the time she retired.
It wasn't until 15 months had passed that Rymyni, who works as a project manager for a tech company, decided to leave the provider.
Unfortunately, though, she estimates this wrong move has cost her £2,000 in extra fees.
Rymyni said: "It was a massive amount, it was insane, and they didn't even give me choices on how I want to invest my pension.
"My new provider allows me to decide where I was my savings to go and they're very transparent about fees and everything."
After switching to Aviva, Rymyni now only pays 0.5% in annual management fees.
Taking that into account, her current pension pot, which is worth £25,000, will be worth £115,000 if she retires at 65.
That's compared to a much lower £50,000 had she stuck with her previous provider, with its higher fees and lower returns.
What is pensions auto-enrolment?
HERE's what you need to know about pensions auto-enrolment:
What is pension auto-enrolment?
Since October 2012, employers have had to enrol their staff into workplace pension schemes as part of a government initiative to get people to save more for retirement.
When does auto-enrolment apply?
You will be automatically enrolled into your work's pension scheme if you meet the following criteria:
- You aren't already in a qualifying workplace scheme.
- You are aged at least 22.
- You are below state pension age.
- You earn more than £10,000 a year
- You work in the UK.
How much do I contribute?
There are minimum contributions that you and your employer must pay.
Your minimum contribution applies to anything you earn over £6,240 up to a limit of £50,270 in the current tax year. This includes overtime and bonus payments.
A minimum of 8% must be paid into the pension, with you contributing 5% and your employer paying at least 3%.
What if I have more than one job?
For people with more than one job, each job is treated separately for automatic enrolment purposes.
Each of your employers will check whether you’re eligible to join their pension scheme. If you are, then you’ll be automatically enrolled in that employer’s workplace pension scheme.
Can I opt out?
You can choose to opt out, but you’ll miss out on the contributions from the government and from your employer. If you do choose to opt out you can opt back in later.
BEING AWARE
Rymyni told us that if she could go back now, she would have paid much closer attention to the charges - but she feels providers need to be more transparent about them too.
"I wouldn't been so caught up and grabbed in by a flashy advert, and I'd do a lot more research and read the small print much more closely," she said.
"You need to be double-checking the percentages, the fees and all the figures.
"But on the flip-side, providers definitely need to be more transparent - I feel like they're playing on people's vulnerabilities and their lack of knowledge around workplace pensions," she said.
"I'm lucky I found out when I did, what if it had gone on for another 10 to 15 years and I'd never found out, or I'd got to retirement and I'd lost out on a massive chunk."
Rymyni isn't the only one who thinks that.
People's Partnership, a pension firm, is calling on providers for greater transparency when charging these kinds of fees.
Patrick Heath-Lay, chief executive officer said: “Unfortunately, very few people know exactly what they are being charged for their pensions and they are being let down by an industry that doesn’t make this information easy to find or understand.
"If people can’t make an informed decision about the value they are being offered by different providers, they risk losing thousands of pounds from their retirement pots.
"This lack of transparency is an enormous issue that pensions providers have to address."
Pension providers must outline their fees and how much they're charging but there are no specific rules on how they have to tell you - so firms are not breaking any rules by burying details in the small print.
But, Patrick said that the onus is on the pension industry to make sure consumers understand what they are being charged.
How do I consolidate my pension?
IF you have several workplace pensions that you're no longer paying into, you might be better off consolidating them into a single pot.
There are several advantages to this.
The first is that by having your savings all in one place, you'll only pay one set of fees.
You can also choose which pension provider you want to transfer the different savings into, so you can pick the best one for you.
It also makes it easier to keep track of your money.
You might want to move all your money to whichever of your existing pots has the best fees, or you could move it all to your current employer pension (if you have one).
Alternatively you may wish to move money to a private pension or use a consolidator service, such as Pension Bee, Aviva, or Wealthify.
Make sure you compare and contrast your options carefully, so that you're picking the best home for your savings.
You'll need to look at fees and charges, but also might want to consider the investment options available.
If any of your pots are over £30,000 you'll need to get independent financial advice, but even if you have lots of smaller pots you should consider speaking to an independent financial advisor (IFA).
You can use Unbiased or VouchedFor to find a recommended advisor near you.
Also ask whether you'll be charged a fee to exit your existing provider and to join your new provider, plus whether the age at which you can access your pension is different - for most people this is currently 55, but is set to rise to 57.
You also need to ensure the pension you're leaving doesn't come with valuable added perks, or you could lose out.
Stay alert for pension transfer scams as fraudsters often target people transferring their pension with promises of investments that are too good to be true.
How you can avoid making the same mistake
Becky O'Connor, finance whizz at PensionBee, warned: "Comparing pension charges can be a minefield, making it really hard to choose between them.
"Particularly if the information is hidden away in the small print!"
If you've had several jobs and are looking to combine pots, or are simply looking for a new workplace pension provider, there are some things you can do to avoid being caught out like Rymyni.
Becky said: "Navigating pension charges can be daunting, making it difficult to choose between different providers, when looking to move your pension.
"However, minimising fees is essential for maximising your retirement savings, as over time, large pension management charges can dramatically reduce your savings."
Here are Becky's top tips to steer clear of unexpected pension fees:
Understand your annual management fee
Becky explained that it's important to understand your annual management fee and how much you're paying.
She said: "Management charges should always be stated upfront by pension providers.
"These are usually charged as a set amount or a percentage of the value of your pension.
"It’s important to understand which applies to you to gauge the true cost implications to your savings."
Make sure to read the small print
Some platforms and advisors charge different fees for various service elements, so it's crucial to look beyond the headline management fee, Becky pointed out.
She said: "You need to add all these charges together to get an accurate fee comparison against other providers that may charge one inclusive fee."
Check what fund you are moving into
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Becky said: "Some specialised funds may follow specific investment criteria or are more actively managed than other default plans."
This can often result in higher fees, so it's important to consider your investment goals and which fund best aligns with these, she added.
How does my pension work?
IF you change jobs, you join a new workplace pension scheme with your new employer.
This has created a situation where some people have several different pensions and there are concerns many struggling Brits have money sitting in old pots that they have forgotten about.
There are a record number of "lost pensions" worth a staggering £26.6billion sitting in inactive accounts, according to insurance giant Aviva.
The typical lost pension pot is worth around £9,500 and it’s thought as many as 2.8million are waiting to be claimed.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.
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