Many people could have a pension that they have long forgotten about with a few pennies, or perhaps pounds in – not really a big deal – but what about if a vast part of your pension was tied up in a so-called Zombie account?
The term Zombie account is used for a fund that is shut to new business – these can include personal pensions, endowment policies, life assurance policies and investment bonds - and there are millions of these lurking about unknown. Many of these funds are paying well below Bank Base Rate, are poorly invested, charge incredibly high fees (sometimes as much as 6%) and are serving an injustice to millions of savers.
They're usually held with organisations that have shut down and closed doors to business. Often these funds are passed around from one business to another and the consumer may completely lose track of their situation and where their money is invested. This is when third-party organisations often step in and take over the funds, so consumers are then relying on a new company – someone they never chose to deal with in the first place – to treat them fairly and to look after their savings with their best interests at heart.
This can lead to an added problem. Just because a fund is closed to business does not mean that all the charges are stopped, and consumers can be hit with anything from monthly charges and management fees to transfer fees. When people took out pensions and insurance products during the 1980s and 90s the products were less regulated and often unreasonably high fees and exit penalties were attached to the products. While the industry treats customers more fairly these days, those locked into these closed funds will still be hit with old charges or terms and many savers are finding releasing their capital from these funds is also proving difficult and costly.
With around 30 million people trapped in these so called 'zombie' funds, the insurance industry unwilling to do anything about it off their own backs and potentially thousands being wiped off fund values, the Financial Conduct Authority (FCA) has stepped in. This month they announced an investigation, to begin in the summer, into zombie funds and the overall possible mistreatment of longstanding customers within the insurance market.
The Government, in the recent Budget, is increasingly trusting people with the role of controlling their own financial future, but when they are trapped in these kinds of inflexible, closed funds, it is beyond the individual's capabilities to make the right decisions. The FCA's enquiry will be looking into whether people are receiving the right information and service about their investments and whether the investments themselves are the correct product for the individual. The regulator claims it's only "supervisory work" at the moment and it is unlikely that people will get large, backdated payouts (as in the PPI mis-selling case) but it could see some consumers aided in their plight for a fair pension deal.
In the meantime, there is something you can do yourself. If you have any old policies then look into them, look up the literature you have on the fund, try to find out who has control of it and review what charges you are paying.
When you take out a new policy, fund or even just a simple savings account in the future, it is so important to keep detailed records of all your investments. It may take up a bit of your time and require a bit of organisational skill but make sure that you keep in control of all of your funds and fully understand what any management companies are investing your hard-earned cash into. After all it's your financial destiny at stake.
Don't get caught in a zombie account - Check out range of sections designed to help you:
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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