Three-fifths (59 percent) of the UK population are unaware of the benefits of pensions consolidation. Over a two-thirds (68 percent) have never considered consolidating their pension. Research comes while ‘pot follows member’ legislation is delayed until completion of automatic enrolment in 2018.
Aegon’s fourth UK Readiness Report, the latest in a series of reports that looks at attitudes toward retirement, highlights the lack of consumer awareness surrounding pension pot consolidation. Three-fifths (59 percent) of people are unaware of the benefits consolidation brings. With 92 percent of the UK population currently falling short of their retirement targets, the need for understanding couldn’t be timelier.
Our research shows that nearly two-fifths (37 percent) of the population have more than one pension pot. Worryingly however, an additional fifth (22 percent) are unaware how many pots they have, which means that the number of people with multiple pension pots could be even greater. This lack of pension engagement could have significant implications for saving levels.
Set against a backdrop of auto enrolment, by the time the process is complete in 2018, it is estimated that around nine million workers will either be newly saving or saving more into a workplace pension – this means that the number of people with multiple pension pots is likely to see an increase in the next two years. Therefore the merits of consolidation will need to be more clearly understood.
Sections of the UK working population are also confused about how consolidating their pots would actually impact their retirement funds. 15 percent wrongly believe it would have a negative impact, resulting in higher management fees, a quarter (25 percent) correctly believe it will reduce fees, while over three-fifths (66 percent) of those nearing retirement (45-65), are completely unaware of the benefit this consolidation will have on fee costs.
Mark Till, Managing Director, Aegon UK Direct said: “With 92 percent of the UK working population still falling short of their retirement targets, the need to consolidate multiple pension pots is more important than ever before. By not doing so, people incur multiple management fees from the different pension providers. These eat into the value of retirement funds, and people need to start understanding that such a move can only be a cost-effective one for them.
“Consolidation also makes engagement more efficient. It is nonsensical for people to have consumer packages such as broadband, or utility packages in their daily lives, but not want the same for their pension. When pots are spread widely it can stifle engagement and lose you money you didn’t know you had, so in a sense, more pension consolidation in the country can help drive up engagement and awareness with pension provisions. The way forward for the government and industry alike is digital engagement.
“Over the past few years a number of providers, including ourselves, have launched online pension planning tools to help consumers and advisers picture different options. Industry-led involvement like this has far greater potential to drive up customer engagement, while driving down costs over time when compared against an automatic transfer process. It’s certainly something for policy makers to consider when ‘pot follows member’ discussions pick up again in 2018.”
