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How many? pension Do you have it? A generation ago, people generally reached retirement With two or three utensils. Today, many people reach that number before even reaching 30.
Job changes, ups and downs Income And auto-enrolment means more of us saving for retirementBut we are doing it in a growing number of small, dispersed accounts.
“Gone are the days of being married to one or two employers during your working life,” says Claire Moffatt. pension And tax specialist at Royal London. “For young people today, it’s not unrealistic to think they might make a dozen pots in their lifetime.”
The new data underscores how common this fragmentation has become. Data obtained by InvestEngine shows that Nest, the UK’s largest workplace pension scheme, has 13.7 million accounts, but only 3.88 million are currently receiving contributions. The rest are dormant.
This doesn’t mean millions of people have stopped saving retirement,
But it highlights a bigger problem with auto-enrolment – the policy introduced in 2012 means employees are automatically opted into a workplace pension scheme.
How does auto enrollment work?
Whenever someone starts a new job with a new workplace pension provider, a new case is created. if your Income Fall below the £10,000 threshold for auto-enrolment eligibility, contributions stop, and an even smaller pot is left behind.
Low- and moderate-income workers, who frequently move between eligible roles, see this the most.
Sarah-Rose Burke of Nest says, “Our average member’s salary is £24,000 a year. We also see many of our members working seasonally, on contract or in shift work.” “Looking at the demographics of Nest members, we often see changes throughout the year as our members cycle in and out of employment and qualify for auto-enrolment or change jobs.”
The problem is clear from Nest’s data.
The average nest pot for women is £3,218 and £4,924 for men. This does not mean that these people are failing to save enough for retirement But each pot may represent only a small portion of their pension savingsA person may have five or six small accounts in different pension providers before reaching the age of forty,
Nest offers a “pot for life” to members whose former and current employers all use the plan, but there are over 300 automatic enrollment plans, so most people still have multiple accounts.
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What’s the problem with multiple pension pots?
“Thirteen years after the introduction of automatic enrollment in October 2012, the proliferation of many small pension pots should serve as a warning,” says Jorge Bonello, head of the Pension Fund. pension On InvestEngine.
“Although auto-enrolment is rightly celebrated for bringing millions into pension savings, it has indirectly led to greater fragmentation. This results in less visibility and control, and greater administrative difficulty in planning retirement,
Small vessels are an issue as they can cost more to run with many fees and charges Some investments may be better than others – Plus it’s easy to lose track of them.
It’s very difficult to understand your overall retirement situation when you savings Scattered across multiple accounts.
Some progress is needed to improve the situation. The Pension Scheme Bill aims to introduce automatic consolidation of smaller pension pots.
In the meantime, there are some practical steps you can take to make it easier to see how much you’ve saved for retirement.
What steps should you take?
Start by finding all your different pension accounts. Your current employer can tell you which workplace pension provider they use, and the Government’s Pension Tracing Service can help you locate any you may have forgotten about.
Once you have the full picture, consider whether strengthening your pots makes sense.
Check the fees and any guarantees associated with your utensils before transferring anything. You can get free pension advice online at PensionWise or by calling 0800 011 3797.
if your Income regularly fall below the automatic enrollment threshold, Establishment of personal pension This can help you make a steady contribution without relying on your abilities at work. It is also important not to let the gap between payments of your pension extend for years.
“If you feel you need to exit your pension scheme due to financial pressure, it’s important to keep a note to check regularly so you can re-enrol when things get better,” says Helen Morrissey, head of retirement analysis at Hargreaves Lansdowne.
“This will be done automatically every three years, but ideally you wouldn’t want to spend so much time out of the market if you don’t need to.”
The growth of small pots is an inevitable side effect of an effective auto-enrolment system that clashes with the flexible way of working for many of us. Getting a clear view of what you’ve saved — and bringing together scattered accounts where it makes sense — can make your retirement planning far less of a guessing game.
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