UK pension savers are failing to engage with their pensions, new research has revealed.
According to the Financial Services Compensation Scheme (FSCS), around 20 per cent of people say they have ‘never’ checked their pension balance and an additional 12 per cent said they could not remember when they last checked their funds.
40 per cent also admitted they did know if their pension was protected under the FSCS, either due to personal time constraints or because they did not know how to check.
Caroline Rainbird, chief executive of FSCS urged savers to check the value of pensions on a regular basis to ensure the funds align with future retirement plans.
“The face of retirement has changed and it never looks the same for any two people, but the importance and value of a pension remains the same,” she told the media. “While we don’t need to be checking our pension pots as often as day-to-day accounts, it is important for people to know how much is in them, so they are aware whether they are on track to afford their retirement dreams.
It is also important to ensure the pension is in a scheme protected by the FSCS, she added.
Most people don’t even start to review or consider their pension until they can see retirement approaching which is, unfortunately, usually too late for them to make any meaningful changes that could be required. Without understanding the potential value of their pensions, individuals cannot make the decisions required to effectively plan their retirement.
Regrettably, the vast majority of individuals are sleep-walking towards retirement with no distinct plan for when they get there.
This lack of interest in pensions also extends to understanding the safety net provided by the FSCS. Many pension schemes are covered under the FSCS for 100% of the amount invested should the provider become insolvent however there are some pension arrangements where the cover is limited to £85,000.
With six figure pension funds not unheard of, some investors may have a large proportion of their fund at risk should their provider cease to operate. Everyone should investigate the level of cover their pension has under the FSCS, so they are aware of the potential risk they have in the unlikely event that their pension provider go out of business.
Meanwhile, research by the Association of British Insurers (ABI) found that interactive pension dashboards could boost engagement with pensions and have called on policy makers to ensure the imminent dashboard legislation incorporates interactivity into its remit.
Research showed that seven in 10 workers want dashboards to be interactive, such as modelling tools which predicts retirement outcomes based on user-adjusted pension contributions.
“The key challenge moving forwards will be to ensure that consumers are not only logging in as a one-off to look, but also being nudged to build habits around engaging with their pensions more consistently, and taking active steps to plan and manage their financial futures,” said Rachel Rowlinson, research director at Britain Thinks.
Under automatic enrolment rules all employers now have to provide eligible employees with a workplace pension meaning that every time an individual changes jobs they are likely to get a new pension. Keeping track of all pensions an individual builds up over their working life is an onerous task, which hopefully should be simplified by the pension dashboard. This will enable individuals to go to one central place to get information about all the pensions they have.
As pensions are usually one of the two largest assets an individual has, being able to go to one place to understand the value held will be a major step in the right direction to get people to pay more attention to their pensions and planning for retirement.
If the pension dashboard gets more people to consider their accumulated pension wealth, it is a logical step that it provides the ability for people to use the facility to interact with their pensions either by having modelling tools available or some level of transactional capability.
However, policy makers need to insure that there are protections in place for individuals using the dashboard to prevent fraud and scams causing individuals to lose their pensions savings.
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