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

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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."

Comments

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.

Scot Widows caught me with this "scam"

When I switched some pension to SW pension funds, they asked me my retirement age and I responded 60+ (no real idea). I invested about 6 months before my 60th birthday and found out - unannounced, months later - that SW had switched and lost me several £k at my 60th birthday. I fought this bitterly and threatened various actions and - eventually - they agreed to reinstate me to status quo ante. Why would any company not question 60+ in a response form? Even the SW exec I chatted to agreed an email would have been sensible. In my view, the problem is under-qualified "jobsworths" doing jobs that can affect peoples finances - sometimes adversely - clearly without supervision.

Pension

When I turned 60 I was told I had to wait till I was 62years and 6 months. I was very poorly at the time and not having an income £0.00 did not make life easy. My husband used to give me bits of money here and there and struggled to pay the bills. He was a diabetic with a partial foot amputation. I had had two strokes so he looked after me. We both struggled for those 2 years 6 months waiting for my pension. We never really recovered financially. This big toll of problems made him very ill and eventually he had a major heart attack in 2016 because we never recuperated properly. He died on his 60th birthday...

Pensions rip off

I took out a with profits guaranteed bonus pension in 1988 with Scottish widows. On approaching 60 they informed me i had better take my pension. But I said i would like it to grow untill i am 60. Yes you can but you lose the protected bonus!! I signed up for a protected bonus. Not being psychic how would i know the government decided to move my age to 65 then to 66.. i did not know it had changed untill 2014!!!! Shame on the government and Scottish Widows.

Gifting

My mum is in a carehome after a severe stroke and pays towards her carehome costs. She has inherited £65,000 from her cousin. I will need to declare this to dwp as my mums financial status has changed. My brother is insistent that my mum can gift both of us £7,500 each. I don't think he is correct on this is he? I have had solicitor advice who said that we could invest the money in premium bonds which i have as it wasnt a high risk investment as the dwp would expect full payment for her carehome until her capital went down to below £23,250.

Care home

Is your father still alive ? Because if he is then she only has to declare half of that I.e. £32,500

Mistakes in pension calculations

In 2002

PPP.

I had magazines in 2016.very interesting. I had ppfm. 1998.i don't have stocks. I gave my magazine to a charity shop.

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