Pensions: To consolidate or not to consolidate
To consolidate or not to consolidate: 87% of pension savers are missing out on the benefits of pension consolidation according to new research by Moneyhub
- 13% of pension savers don’t think it’s worth the hassle to combine pensions
- Only 13% of savers have already consolidated their pensions, with a further 23% planning to do so
- 8% of savers didn’t even realise that they were able to amalgamate pension pots
With career patterns changing and workers likely to have an average of 12 roles throughout their career, it’s to be expected that by retirement savers will likely have numerous pension pots.
Yet according to new research from Moneyhub, the data and payments platform built on Open Banking and Open Finance principles, around one in eight (13%) pension savers don’t think it is worth their time and effort to combine pensions, with a further 14% preferring to actively leave their pension pots separate.
These attitudes run the risk of savers potentially leaving their retirement savings in poor yielding investments or forgetting a number of their pension pots altogether. Indeed, recent research has shown that around 88% of individuals with workplace pensions have at least one pension that remains unclaimed and there is an estimated £26.6bn of lost pension pots in total.
It could be argued that the challenges consumers face when trying to locate lost or old pensions and their overall lack of clarity around pensions, could be behind these numbers. In fact, a further 8% are unaware that they could combine their pensions into one.
The research found that only 13% of pension savers have already consolidated their pensions and a further 23% plan to combine their pensions in the future. The concept of consolidation was most popular with people aged between 25 and 34, with 16% already having done so, and 42% planning to. However if the process isn’t intuitive or proves cumbersome there is the risk that many put this task further down their to-do list.
The Government’s Pensions Dashboard will help users track down their lost pensions, but won’t encourage or offer consolidation as a next step. Moneyhub points to commercial dashboards as the answer to the overall problem. Commercial pensions dashboards enhance the overall dashboard offering; users can locate all pensions and can be taken through a range of follow up services, including consolidation, retirement modeling, alongside an overall understanding of their financial universe and the actions they need to take to ensure consumers have better results in retirement.
Mark Horwood-James, MD of Moneyhub Personal Finance Technology comments:
‘Structural challenges within the UK pension market such as fragmentation and low consumer engagement are driving inefficiencies and undermining savers’ ability to achieve decent retirement savings. With workers having longer careers and numerous roles over the course of their working life, they are ending up with multiple pensions.
‘The research is clear. There is a troubling inertia when it comes to consolidating multiple pots. Combining pensions into one can make it easier to manage; from having more choice over your investments to paying lower fees. The Government’s Pensions Dashboard will be a great milestone; it will however be the providers that embrace Open Finance technologies, like Moneyhub’s, alongside the dashboard, that will be the winners. They will be able to break down the barriers to engagement and ease the process of consolidating pension pots. Commercial dashboards will allow users to see their pensions alongside all their other financial products enabling them to have sight of the whole of their financial universe, make more informed financial decisions and take action, which in turn will create better later life financial outcomes.
‘Moneyhub’s Personal Finance Technology platform, used by the likes of Aon, Mercer, and Standard Life, is already able to help consumers find their pensions and help them better understand what they can expect when it comes to their retirement finances. Tools like our retirement modeler can help users plan and adjust their habits utilising their individual saving and spending data. While the industry waits on the delivery of the government’s dashboard and central architecture, the technology to facilitate a dashboard experience and the follow-on actions needed is already available.’