Assets held in workplace pension schemes at retirement fall by 43% in a year to only £5,500
• But savings gap can be made up through additional personal pension savings
The average value of assets in Defined Contribution workplace pensions schemes at retirement fell to just £5,500 in January 2020, says Salisbury House Wealth, the leading financial adviser.
Salisbury House Wealth says that as the average sum in Defined Contribution workplace pension schemes are so low savers should be supplementing this with their own private pension savings.
The majority of Defined Contribution workplace pensions are auto-enrolment schemes, where employers often contribute the minimum 3% of employee’s salary.
Tim Holmes, Managing Director of Salisbury House Wealth, says: “Auto-enrollment is doing a great job but cannot be solely relied upon for retirement income. Instead savers need consider additional investments and personal pensions as well.”
“The figures support just how crucial financial planning is to help ensure that today’s workers are able to enjoy a retirement that they deserve. Long-term planning holds a critical importance if an individual is to achieve their financial goals.”
Fall in average workplace DC scheme savings raises questions over pension consolidation
The average value of assets in Defined Contribution pension schemes fell by 43% in a year, from £7,865 in January 2019 to £5,500 in January 2020. This steep decline can be partly explained by employees moving jobs. As they move they are enrolled into a new pension scheme. With people now changing jobs more regularly than previous generations, many individuals have multiple pension pots with smaller amounts, rather than one large pension.
One possible option for individuals would be to consolidate all of their pension pots that they have collected over the years into a single pot. In doing so, people would not be at risk of forgetting any pension pots that they have collected when they have moved jobs.
However, Salisbury House Wealth says that if savers do choose to consolidate their pensions, it’s critical that they receive professional advice beforehand. Individuals risk losing out on certain benefits if all their pension pots are consolidated into one, including the following:
• Life cover: Some pension providers offer life cover as part of their services, but people may lose this if they transfer their pension to another provider.
• A guaranteed pension amount: Some pension providers offer a guaranteed minimum level of income, the amount of which is dependent on the contributions or premiums paid by the member over time. However, not all pension providers offer this benefit.
• Tax-free lump sum withdrawals greater than 25%: Members of a pension scheme that were entitled to withdraw a tax-free sum greater than 25% of the pension value on 6 April 2006 will still have their tax-free cash entitlement protected. However, a person will lose this if a pension is transferred to another provider that does not offer this benefit.
Adds Tim Holmes: “Auto-enrolment of workplace pensions since 2012 has meant many people have several different pension plans with several different providers. It might be prudent to consolidate all of them into one single pension so they are easily accessible upon retirement, providing they do not miss out on any attractive benefits. Future retirees need to seek professional advice before making a final decision on whether to consolidate.”
Pension consolidation, for example, could mean retirees have to pay higher management fees than previously, may suffer from lower returns and face exit fees to complete the transfers. Investors could maximise the benefits of a single pension if it offers lower fees and higher returns than the others that they held, but an individual’s pension pots must be analysed by expert advisers before coming to a definite conclusion.
Despite the drop in value, the data shows more individuals are retiring with at least some pension savings. Membership schemes with 12 or more members increased by 17% from January 2019 to January 2020. There were over 19,000,000 members of occupational DC schemes in January 2020 and this figure has grown every year since 2013.
Notes to Editors
Salisbury House Wealth is a leading financial advisor founded in 1986, and based in Leicester.
Salisbury House Wealth offers specialist professional advice to high net worth and mass affluent individuals on a range of financial products. These include mortgage and pension plans, investment programmes, inheritance tax plans and life insurance.