Barriers to pension consolidation need to be removed, for the benefit of both employers and employees. We estimate that, given a typical individual's employment turnover, up to 10% of all private pension funds have been forgotten or lost or simply left behind, and that the primary reason for this is that pension consolidation is so complex as to be difficult if not impossible to achieve.

The amount "lost" in the Bermuda Triangle of pension funds could amount to thousands of euro per affected private sector worker. It is widely acknowledged that we are in the midst of a pension confidence crisis, in which case policy-makers need to make every effort to ensure that it is as simple and attractive as possible for people to save for their retirement. We need to simplify archaic and complex pension structures to ensure that pension funds are 100% portable.

We urge those driving the pensions agenda to strongly support initiatives that make pension consolidation easier. Employees should be able to transfer between personal pensions, PRSAs, PRBs (Personal Retirement Bonds), occupational schemes and self-employed pensions, without penalties.

Penalties for rule-breakers

A person may consolidate their pension only if the rules of the scheme or schemes in question allow for the pension to be transferred elsewhere. Many schemes, however, apply hefty penalties for the transfer or consolidation of fund balances.

It is not just employees who can suffer as a consequence of the barriers to consolidation. Employers are often faced with having to pay for the administration of ex-employees, who have simply never transferred their fund balances across to their new employer.

Many of the barriers to consolidation are derived from dated practices that are not suited to the current environment. Certain initiatives were introduced when most people were expected to be in the same job with the same pension for more than 20 or 30 years.

Times have changed, however, and the industry needs to transform to reflect modern practices. It is futile to advise people to save for their retirement without driving an agenda for change that supports that.

Due to the way revenue maximum calculations are made, those who change employment late in their career and transfer their pensions to their final employer will lose certain benefits. Also, there are certain benefits (for example payments in the event of death) related to PRBs, that people wish to retain and therefore avoid consolidating their funds.

The difference in charges can also deter people from consolidating, where an employee is reluctant to move an existing fund to a new fund with a significantly higher charging structure.

Benefits of consolidation

Consolidating various funds into a single pension fund offers a variety of benefits. However, before people switch, they need to know the implications.

Ideally, the industry should work to remove the barriers and obstacles against pension consolidation. However, in reality it would appear that the pensions industry does quite the opposite for the simple reason that, if more pensions were consolidated, there would be fewer individual funds and consequently a smaller market.

People should consolidate for various reasons, including the following: So that they don't lose track of pensions when moving from one employment to another; for ease of assessing if they are on target to meet personal pension and retirement goals; to identify and fill funding gaps; to make pension management less time-consuming in the long run; to ensure asset allocation overall is suitable and the investment strategy is coherent.

Pension consolidation should be more cost-effective. In many cases, it will cost a person more to consolidate their pension funds than to leave them as individual funds and this is what needs to change.

People with multiple pension funds scattered among various providers are much more likely to lose track of their funds. We need to encourage people to manage their funds and not penalise them for doing so.

Currently, consolidating pension funds by switching from one fund to another could erode the fund by thousands of euros.

Examples of some of the barriers to consolidation, which are important considerations for pension-holders, include loyalty bonuses, early termination penalties, guaranteed annuity rates, integrated life cover or additional benefits, final salary pension benefits and Revenue's maximum benefit calculations.

Many facets of the financial services sector are complex by nature and none more so than the pension industry. There is an acute need for measures to be taken to achieve more transparency and efficiency within the sector and complete pension portability is one such measure.

We are calling for systems and procedures to be carefully reviewed which would allow pension-holders across the country to achieve full pension portability.

Fionán O'Sullivan is a director of IFG Corporate Pensions

State may seize unclaimed pensions

The Sunday Tribune revealed in May that the government is considering taking control of unclaimed pension funds.

A state-managed fund would be set up, modeled on the Dormant Accounts Fund which allows money that is unlikely to be reclaimed to be spent on poverty and social deprivation projects, replacing direct expenditure by the exchequer.

"Consideration will be given to the establishment of a state-managed fund into which companies who cannot trace former employees would lodge the accrued benefits," according to the briefing notes drawn up for social protection minister Éamon Ó Cuív.

However, before that, the fund would have to try to trace the pension rights of former employees and scheme trustees.