Pensions are a hot topic issue these days. Many reports show that pension income needs to be given much more consideration, with many people underestimating how much they’ll need in retirement. This is exacerbated by the fact that people are generally living longer, resulting in pensions having to cover many more years than originally planned. State pensions are also facing this problem, with costs becoming such an issue that the state pension age is expected to rise continuingly over the coming decades.
Recent investigations from Which? revealed that the current system leaves workers struggling to track down and understand their retirement pots.
The organisation has now called for the government to introduce a comprehensive pensions “dashboard” that could help with this problem.
In responding to this proposal James Jones-Tinsley, a Self-Invested Pensions Technical Specialist at Barnett Waddingham, had this to say: “Initiatives like the Pensions Dashboard have the potential to transform the way that people understand, engage with, and build up their pension pots, which is more important than ever in an increasingly complex savings landscape.
‘That Which? is shining a light on the difficulties for savers of tracking down key pieces of information is a welcome contribution to pushing the concept forward.
“However, it may not be as simple as it sounds. A recent briefing note from the Pensions Policy Institute (PPI) explored the difficulty in estimating the number and total value of ‘lost’ pensions in the United Kingdom; if the average person has 11 jobs over the course of their lifetime, it’s no surprise that over 800,000 pots are currently ‘lost’.
“Initiatives like the free government Pension Tracing Service (PTS), which helps reunite people with their lost pensions, are helpful here, but questions around data security, foreign pensions, state pensions, and the inclusion of defined benefit arrangements remain unanswered.
“To work well, it is essential that the pensions industry throws its full weight behind making the dashboard project a success.”
While many feel that having enforced pensions from multiple sources is a good thing, as it will likely result in many people having more income in retirement than expected, some have highlighted that there are also benefits to combining all these pensions into a single source.
As Stuart Feast, Founder and Chief Executive Officer of financial services firm Zippen, explains: “Throughout our working lives we may have up to eleven different jobs, potentially meaning eleven different pension pots.
“We would be unlikely to run three or four bank accounts for the same purpose so, not only would consolidation make pensions easier to administer but it can also enable us to make clearer plans for the future, with greater visibility of likely outcomes.
“With pensions held in one place, under one roof, clarifying any points of issue or making any changes is much easier. In addition, with so many pots, some of these are likely to be relatively small in value and this will mean that many pension providers will not allow flexi access drawdown, unless there is a high enough fund value.
“Consolidation could also lead to significant cost savings through a reduction in the annual management charge alone. For example, if you had three pots with £10,000 in each, and the first two had an annual management charge of 0.7 percent, but the third scheme had an annual management charge of 0.4 percent, and you decided to consolidate the more expensive pots into the 0.4 percent scheme, you would actually save £20,000 x 0.3 percent = £60 every year for the lifetime of the policy, not an insignificant sum.
“One should always be wary of the fund performance of both the transferring and receiving schemes, as this will make a difference, but on charges alone, it is a no brainer.”