Managing money can be complex at times, especially when it comes to pensions. In the modern world of retirement planning, employees change jobs many more times than they used to, and with workplace pensions now compulsory through auto-enrolment, this can mean that most people accumulate multiple workplace pension pots.
The Association of British Insurers (ABI) has released figures that estimate the amount of lost workplace pensions is 1.6 million pots, totalling £19.4 billion. That is staggering amount of hard earned wealth lost forever. But how can this happen?
When an employee moves jobs, they automatically leave the workplace pension scheme for that job and join the scheme at their new company. It is possible to consolidate retirement and transfer pots from old jobs into existing workplace pension schemes. However, the education around this is poor and therefore many people fail to follow through with it. Even leaving the pots untouched is absolutely fine and they can still be accessed at age 55. The biggest problem occurs when employees move house or change contact details and fail to inform the pension providers for their old schemes. This can lead to schemes being forgotten about entirely, or people passing away and their beneficiaries not being aware that the schemes exist.
Aside from the issue of losing schemes, there is also the fact that old schemes are being neglected from an investment point of view. It is not necessarily in the forefront of employee’s minds to review their investments within past workplace pensions and therefore some underperforming funds are left untouched. Over the career of the employee, this can make a significant difference on the size of the pension pot at retirement.
These two major problems uncover the fact that people are becoming disengaged with pension advice and the investments they hold within them. The education surrounding financial advice is poor meaning that most people either don’t know that they can manage their pensions or are too unsure of how to go about it so prefer to turn a blind eye. As final salary pension schemes become more rare, retirement planning has never been more important. Combine that with the issue of life expectancy increasing, it shows how vital pension advice is for future retirees.
Fortunately, there is a free Government service called the Pension Tracing Service. This can be utilised by anyone who believes they have old pensions from previous jobs and would like assistance is locating them. Visit their website or call them on 0800 731 0193. We would recommend savers take financial advice on consolidating past workplace pensions into one pot so that they are easier to manage. However, be careful when doing so because some schemes will provide specific benefits such as Guaranteed Annuity Rates, and these benefits may be lost if you transfer away from that scheme. If in any doubt, contact us for support and we can find out whether it is best to consolidate your pensions.
Overall, it seems that auto-enrolment has been excellent for increasing the level of savings that employees have for retirement. However, this is redundant if the employees themselves are not aware of how to manage these pension pots and therefore lose access to them. A vast improvement in education around pensions and personal savings would be very welcome.