Dear Rocio,
What needs to be done to simplify the pension system for savers?
Name and address supplied.
Rocio says: My husband is going to be getting an extra Christmas gift this year, but I’ll not share what it is in case it ruins his surprise. As I was wrapping presents I remembered that I’d bought it a few months ago and put it away, but then I forgot about it.
It’s maybe not such a big deal when you forget you’ve put away a Christmas gift, but many of us do something similar with our pension savings. We are automatically enrolled into a pension scheme when we start a new job, we pay into it for a little while, then move jobs and forget all about it.
People are working many more jobs in their careers than ever before and this means an increasing number of pension pots to keep on top of.
At Which?, we have led the charge for a pensions system which makes it easier for people to set themselves up for a good retirement, without requiring everyone to become a pensions expert.
That’s why it was encouraging to see the Chancellor announcing pension reforms in last month’s Autumn Statement. This included an announcement confirming that the Government would press ahead with plans to consolidate “small” pension pots of less than £1,000 that are no longer being paid into.
More than one million deferred pension pots worth less than £1,000 are created every year because people move on from jobs and leave them behind. It’s easy to lose track of these pots and even forget that they exist. They also make the pension system more expensive because there is a cost to administer each one, and that ultimately means higher charges for all of us.
The Government intends to bring in a system so that if someone has one of these small pension pots then it will be automatically transferred to top up another larger pot that they have. If there is no suitable larger pot then the small pot will be moved to an authorised pension provider that specialises in managing smaller pots.
It will take a few years before this can happen, but it would lead to a cheaper and simpler pension system.
However, one crucial pension reform, work to which is already well under way, didn’t get a mention in the Chancellor’s Autumn Statement: pensions dashboards.
Pensions dashboards would give savers one single place to view all of their pension information, including their state pension. Which? backs this policy as it will drive engagement with pensions and help support pension savers to make informed choices about their retirement savings.
Yet work on getting dashboards up and running remains frustratingly slow, with pushback coming from several sections of the pensions industry.
The Government began conceptualising ideas as to what the dashboard would look like in 2017, when it even built a prototype of what it might look like. As far back as 2010, the Pensions Regulator warned schemes to get their data in order.
Failure to implement dashboards could also mean a huge number of pensions simply get lost. The Pensions Policy Institute estimates that by 2050 there could be as many as 50 million dormant and lost pensions. That’s people’s hard-earned money simply going spare, with potentially significant consequences for their standard of living in retirement.
More immediately, there are worrying signs that an increasing number of people are dipping into money intended for retirement amid a worsening cost of living crisis, which could very well lead to higher levels of pensioners in poverty in the future. Consumers should have all possible information they need before making such big financial decisions.
Evergreen money advice is that it’s never too early to start thinking about your pension. But without knowing where all your pension savings are, what they are worth and what this could mean for you in retirement, that’s much easier said than done.
Rocio Concha is the director of policy and advocacy at which.co.uk. To have your question featured on this page, email business@inews.co.uk