The financial services industry must help savers to get a grip on their pension pots and not wait for pension dashboards which have yet to be launched, says Evelyn Partners.
The concept of a pension dashboard was first referred to by the Financial Conduct Authority in December 2014, however a decade later they have to be launched and last week it was revealed that the cost of the project has surged as a result of ‘capacity and capability issues.’
Emma Sterland, chief financial planning director at Evelyn Partners, said the flurry of Government-led pension measures could be confusing to UK savers.
“The UK’s pension savers can be forgiven some confusion over Government-led measures to help them manage multiple retirement pots. While the lights have faded over the years on the pensions dashboard project, the Government has floated other pension-industry solutions to the issue of people accumulating a number of sometimes small pots through their working life.
‘We’ve had “pot follows member” versus “default consolidator”, and now we have “pot for life”,” she said.
Research suggests about 4.8 million pension pots are ‘lost’ in the UK, amounting to nearly £51 billion, as a result of people building up separate pension pots as they change jobs. The phenomenon prompted Chancellor Jeremy Hunt to announce the ‘pot for life’ concept in his 2023 Autumn Statement, which would see employees keep a scheme from a pension provider ‘for life’ as they move through different employers.
However, Sterland said the industry should encourage pension savers to act rather than wait for the Government to take action.
Sterland continued: “It’s probably wise for savers not to wait around for a solution like “pot for life” before they get a grip on their pensions. It would require structural reforms to the pensions sector and to occupational schemes, and if dashboards are anything to go by, don’t hold your breath. The idea was met with mixed enthusiasm in the pensions industry, there was no advance in the spring Budget, and with a General Election just months away it could easily be sidelined by a new Government.
But as the cogs of policy grind slowly round, today’s pot-juggling savers would do well to give their retirement some serious thought. Typically, savers make two big mistakes: they underestimate how long they will live and they underestimate or give no thought to what they need to save to support the lifestyle they want in retirement.”
Evelyn Partners has called for greater awareness around financial advice in helping people achieve better retirement outcomes.
Sterland said: “Many people simply don’t have the awareness, time or motivation to manage and monitor their pension savings. Advice might seem a luxury for those with less substantial savings, but it can still benefit those who lack the knowledge or confidence to manage investments and plan for retirement. Where pension plans are complex and the saver is not sure of the features or benefits of legacy pots, advice can be invaluable regardless, to an extent, of the sums involved.”
Sterland said the closer people progress towards retirement or taking benefits, the more jeopardy there is in decisions over whether to transfer or consolidate pots and the more valuable advice will be.
Evelyn Partners said those with deferred defined benefit, or final salary, pension schemes that offer a guaranteed income for life need to be particularly cautious, as in most people’s interest it will be better to keep their defined benefit pension. Some defined contribution or money purchase schemes with ‘safeguarded benefits’ also require extra consideration before transferring out.
Sterland said that more and more people are also cashing in small pots in full, either early in or before retirement. However, she cautioned that many people cash in what they consider to be ‘small’ pots, which could be larger than the industry definition of £10,000, because they simply think they are not worth keeping hold of, when in aggregate they could make a significant contribution to retirement income.
Sterland added: “With the failure of pension dashboards to materialise, and structural reforms like ‘pot for life’ potentially far off in the future, it can be difficult for savers to properly value their overall retirement fund, or to monitor how it’s performing.
“So as more and more savers accumulate multiple workplace pensions under auto-enrolment, it’s probable that many will be tempted to get rid of pots they deem “too small to bother with”, or fail to pay sufficient attention to how they are invested, which in turn could leave them short in retirement. This under-appreciation of splintered savings is another argument for getting a grip on multiple pots.”
