Recent research from Royal London has found that around five million people in the UK have ‘forgotten’ pension pots from final salary schemes of former employers.
What’s more, many of these deferred members of defined benefit funds don’t know how much a lump sum payout of this accumulated pension would be worth, thanks to a lack of communication from the provider of their old scheme. As people who transfer their pot are offered an average lump sum of between £158,000 and £190,000 – around 25-30 times the annual value – the collective amount held in these forgotten pots could reach a total of up to £800 billion.
As many people are unaware that they are holding valuable pension assets, potentially worth a six figure sum, the researchers emphasise that those who are members of these schemes should take steps to discover how much their pensions are worth, as well as seeking impartial advice on what to do with the money. Whilst taking a lump sum may seem attractive, it may not be the best option for many people, as doing so means sacrificing a guaranteed pension payment.
Nonetheless, more and more people are choosing to make use of pension freedoms in order to take lump sum payments from their retirement savings. The former pensions minister, Baroness Altmann, has suggested that whilst granting the freedoms was the right thing to do, the government should make consultation with the official financial advice service, Pension Wise, compulsory for those looking to take a lump sum. Doing so would ensure “people get financial advice before they make a decision that is irreversible”.
Making any big decisions about your pension can of course have significant ramifications for your future retirement, so if you are considering whether or not to take advantage of freedoms yourself, make sure you seek professional advice before doing anything. If you have any questions around this topic, please feel free to get in touch with us directly.