We spend our working life imagining our retirement will enable us to enjoy life to the full. Travelling, spending time with family and making the most of our precious free time are common and not unreasonable wishes. However, for many, their retirement dreams have been dashed by poor performing funds and lack of financial planning.
According to recent research, one retiree signs up to a poor performing pension every seven minutes and the Office of Fair Trading (OFT) have recently warned that £40bn of retirement savings are stuck in these pensions. Off the back of the disappointing results, the OFT are calling for new powers for the pensions regulator and greater transparency on costs, ordering a crackdown on the pension market and poor value schemes, which result in high charges and lack of control.
Some older schemes set up before 2001, often have higher charges compared to other plans, with annual management charges as much as 2.3%. High charges like this can erode the final value of a pension quite dramatically, leaving those facing retirement at risk. To add insult to injury, if your pension is performing poorly, you could lose out by switching because of high exit charges.
Pension products are often complex, which contributes to the difficulty of making the right choices about your retirement savings, for both individuals and employers. The OFT has also asked the government to consider banning the poor performing schemes, which are now being used for the auto-enrolment system being rolled out across businesses in the UK. The findings by the watchdog found that employers lack the capability or incentive to choose which scheme offered the best value for money, a growing concern as 9 million more workers are due to sign up to pension schemes in the next 5 years.
With a record number of people working passed retirement age in order to secure a comfortable retirement, it is vital that people become more engaged with their pension savings and take control of their future, especially if retirement is on the horizon. With this in mind, it is important to talk to a financial expert to help you make the right decision for your retirement savings.
If you have any questions regarding your pension performance, please contact Retirement and Investment Solutions.