Millions of pension savers could be missing out on up to £10,000 each, because their providers have the incorrect retirement age.
Many people are in schemes which were set up when the default retirement age was 60 for women and 65 for men. However many will not have updated this information, despite the fact that the state pension age is rising in stages to 68 (for both women and men).
New analyis by Aviva shows that an average earner in an automatic enrolment scheme could miss out on more than £4000, by sticking with a default retirement age of 65 when they actually intend to retire at 68.
But anyone whose retirement age is still set at 60 could miss out on almost £10,000. This is a situation that is more likely to affect women, due to the way default retirement ages were set in the past.
This outcome can occur because every default investment solution has a de-risking element, which begins a number of years prior to the set retirement date.
If a provider holds a retirement age that is too young, they will move investments to less risky assets too early. This means people lose out on investment growth when their pension pot is the largest.
Aviva points out that with almost one in two workers (47 per cent) now
of all workers saving into defined contribution pensions, and around 90 per cent of those invested in default funds, this issue could affect a significant number of people.
Aviva’s managing director of workplace savings and retirement, Colin Williams says: “De-risking profiles have been carefully designed to balance risk and return in the approach to retirement. But this balance is thrown out of kilter if someone wants to retire at a different age than was originally assumed when they started their pension.
“Many providers allow you to check and change your retirement age online. I’d encourage people to go online and check the retirement age their provider holds, and if doesn’t match their current plans, change it.”
He adds that changing the retirement age is a simple way to maximise the potential returns of your pension investments — as well as being an opportunity to check whether pension savings are on track.
Exact losses will depend on the de-risking glidepath taken by the provider. some start many years out and will target a portfolio where there is virtually no exposure to higher risk assets like equities at retirement. Others still have substantial equity holdings at this point.
In Aviva’s ‘My Future’ default solution, the five-year return for investments, at 31 March 2019, was 3.2 per cent higher 30 years from retirement, and 1.1 per cent higher five years from retirement, compared to the return at retirement age.