The admin mistake that could wipe £10,000 off your pension

11 September 2019

Savers could lose as much as £10,000 by failing to inform their pension provider of their anticipated retirement age, with women suffering the biggest potential losses


Millions of workers have not revised their expected retirement ages in pension paperwork, leading to a warning from pension provider Aviva. 

The days where women retired at age 60 and men at 65 have now been relegated to history. Ongoing increases to state pension age and the scrapping of the default retirement age in the workplace means individuals are now able to stop working at an age that suits them.

A worker with average earnings in an auto-enrolled pension scheme who planned to retire age 68 could lose £4,000 by leaving the retirement age on their pension at the default age of 65, according to Aviva.

Women that still have a default retirement age of 60 are the worst affected, with average earnings, stand to see £10,000 wiped off their retirement savings.

The losses occur because the default investments used by the majority of workplace savers employ a 'de-risking strategy', where savings are gradually shifted into lower-risk investments in the years ahead of retirement.

This is intended to lock in savers’ profits and reduce the potential for losses that they will not have the time to recoup. However, if this de-risking process starts earlier than necessary because the pension company does not have an accurate retirement date, savers stand to miss out on years of lost growth when their pension is at its largest.

The opposite can also happen if savers plan to retire earlier than the date on their pension plan. If savings haven’t been de-risked in time and the bulk of their savings remain in higher risk investments, any sudden market moves could see their pot suffer substantial losses.

With 47% of all workers paying into defined contribution pensions and as many as 90% of those using default investments, huge numbers of savers could be affected.

Commenting on the findings, Colin Williams, managing director of workplace savings and retirement says: “De-risking profiles have been carefully designed to balance risk and return in the approach to retirement. But this balance is thrown off kilter if someone wants to retire at a different age than was originally assumed when they started their pension.

“Changing your retirement age is a really simply way to maximise the potential returns of your pension investments. Plus, it’s an opportunity to check how much is in your fund and if you’re on course to achieve the type of retirement you want.

"Many providers allow you to check and change your retirement age online and check the retirement age their provider holds and if it doesn’t match their current plans change it."


Pension freedoms make de-risking largely irrelevant...

... because the whole point of de-risking was to prevent people's pension funds being adversely affected by a huge swing (downward, at least) when it came time to buy that compulsory annuity.

These days, annuities are generally poor value for money, and the only people who should be in a plan with such an automatic age-related de-risking strategy would be only those who know ahead of time that they will be getting an annuity.

Anyone planning on using drawdown should not be using this automated de-risking and should be taking a more proactive approach to how their pension fund is allocated.

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