Just saving into any pension and hoping for the best might not be the most effective way to put aside enough money to fund a comfortable retirement for millions of workers.
Workers stashing retirement cash into an auto-enrolment scheme provided by their employer are set to miss out on £9 billion by 2019 because they are being too conservative with their savings, according to new research.
Instead of managing their money, millions are content to pay into their pension every month but fail to make sure cash is working hard for their retirement.
Consultancy Decision Technology has worked out that millions of workplace auto-enrolment savers accepting the default fund for their savings are missing out on £700 a year in extra growth – which adds up to a massive £900 billion of available investment earnings.
The firm’s research found that too few workers question how their retirement savings are performing.
Epidemic of apathy
Out of 938 individuals interviewed by Dectech, only 5% had tried to switch their fund, no more than 9% were aware how their money was invested and just one in five (20%) knew how much they had saved.
And a third did not know which financial firm provided their pension.
Dectech director Henry Stott said: “A true epidemic of apathy surrounds pensions.
“By failing to properly engage with their pension, employees are likely to retire with a much smaller pot than they could have had.
“Millions of people will miss out on their dream of a secure and rewarding retirement. Employees are blissfully unaware they could increase their savings with very little effort by simply choosing to move their pension out of the default fund.”
Urged to take control
Stott urged the government, pension providers and employers to engage workers to take more control of their savings.
“The government should communicate how much money employees are throwing away by remaining disengaged and emphasise that default funds are not recommendations and better options may be available,” he said.
Stott explained that pension savers should have access to the best investment advice, while employers should pick the right funds for their employees and provide them with a pension review at regular interviews.
Dectech is a consultancy advising financial business about behavioural science.
