The average pension pot for Brits in defined contribution workplace schemes fell to just £5,500 in January this year, figures from Salisbury Wealth have suggested.
According to the financial adviser, assets held in workplace pension schemes at retirement have fallen by 43 per cent in a year to only £5,500 at the end of 2020.
Based on data from The Pensions Regulator, Salisbury House Wealth said it was a worrying indication that savers needed to 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 per cent of an employee’s salary.
Even the 8 per cent total contribution has come in for criticism, with many organisations - including the Pensions and Lifetime Savings Association - calling for a 12 per cent contribution to help keep people on track for retirement.
According to Tim Holmes, managing director of Salisbury House Wealth: “Auto-enrolment 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.”
Earlier this year, FTAdviser reported on the drop in employee and employer contributions over the first quarter of 2020, according to data from the Office for National Statistics, indicating worrying trends in workplace pension provision.
When it comes to the matter of having several smaller pots, Salisbury House Wealth suggested it might be worth some people consolidating DC pensions into one place, if it were appropriate.
Holmes said: "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, if savers do choose to consolidate their pensions, he warned it was critical that they receive professional advice beforehand.
This is because individuals risk losing out on certain benefits if all their pension pots are consolidated into one, including:
- 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 per cent: Members of a pension scheme that were entitled to withdraw a tax-free sum greater than 25 per cent 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.
Holmes added: “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"
However, it was not all bad news.
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 per cent from January 2019 to January 2020. There were over 19m members of occupational DC schemes in January 2020 and this figure has grown every year since 2013.