About one third of people in the UK collect something – stamps, china and watches are popular targets for hoarders but there are also those with more specialist tastes (and names to suit) – small bags of sugar (sucrologists), beer mats (tegestologists) and tax discs (velologists). Over the years, psychologists have tried to decipher this syndrome and claims have been made that the habit could relate to being unloved as a child or that we have some existentialist idea of creating a collection to last beyond the grave.
However, and probably unsurprisingly, despite a thorough search of the world wide web, I could not find on any list the most common variety of amasser - the pension collector, of which, in my experience, there are many.
Pension collecting is a by-product of job-hopping, career ladder climbing or an unlucky spate of redundancies. Thus, it is not uncommon in my job to meet a mid-50-year-old with a fine and varied collection of schemes – five is a good average, but it is possible to get into double figures during a 30-year career.
But unlike those that seek out rare comics or dinky toys, where the passion is in the detail, it is unusual to find a pension collector who has the faintest idea of the value or the technicalities behind any of the schemes they hold. So, whilst it might be one of the most widespread of collecting habits, it is difficult to fathom any joy in the ownership.
Of course, as retirement approaches, there comes a pressing need to look more closely at the collection – the thought process often goes: surely pensions cannot be that complicated; it can only be a matter of opening an account online – known in the trade as a SIPP – and transferring them all into it. Job done!
Luckily the thought rarely turns into a reality: it is very easy to make an expensive mistake. Here is how it can all go horribly wrong:
There are three basic types of pension – the personal pension, the company-defined contribution (DC) scheme, and the company final salary scheme.
While personal pensions have the simplest structure of the three, there can be hidden hurdles, such as: with-profit funds – if you are invested in this sort of fund, there can be penalties to transfer; guaranteed annuity rates – some schemes in the 1980s and 1990s offered these guarantees, but these are lost on transfer; commission – where an initial commission was paid on the sale of a scheme, there can be a residual penalty on transfer.
Company DC pensions are a little more complex and the risk of making costly errors is much greater. This is especially the case for plans started prior to April 2006 which can have protected benefits: some have an early retirement age of 50, others have enhanced tax-free lump sums (above 25%), and both could be lost on transfer if not handled by a qualified professional. These schemes are also often subsidised by the employer and a transfer to a SIPP will result in additional running costs. However, if the scheme stays in situ, the only option on retirement is usually to buy an annuity.
Finally, there is the Final Salary scheme, which is the most complex but often the most valuable of pensions. Since the advent of pension freedom, if the scheme has a transfer value in excess of £30,000, the Trustees of the scheme will insist that a suitably qualified adviser signs off the transfer.
I came across another way that psychologists have tried to explain why we collect, which is referred to as the Endowment Effect: the thinking suggests that we are prone to value things more once we own them, hence the reason we acquire them in the first place. Clearly, this theory can’t possibly apply to the haphazard collector of dusty and unloved pensions schemes.