Confusion over pension values poses opportunity for advisers

Confusion over pension values poses opportunity for advisers

The majority of UK adults don’t know the combined value of their pensions or if they’re getting good returns on them, pointing to a big opportunity for advisers to educate their clients around pension consolidation, according to LV.

Data collected by LV and seen by FTAdviser found fewer than half (44 per cent) of those surveyed with two or more pensions knew the value of all of their pots.

It also showed an even smaller 36 per cent knew whether they were getting good returns or not, whilst the vast majority remained none the wiser.

As a result, just one in ten pension holders have taken steps to consolidate their pensions. And a meagre 9 per cent said they planned to save more into their pensions, increasing to 13 per cent for the UK’s mass affluent.

Currently, LV estimates 12 per cent of the UK’s adult population - or 5m people - don’t even know how many pensions they have. But the majority (58 per cent) at least know who their pension providers are. 

“It is not surprising that so many people struggle to keep track of their pensions,” said Clive Bolton, LV’s managing director of savings and retirement.

“A working career may last more than 40 years, involve multiple jobs and it can be easy to lose track of pensions from the start of your careers, particularly if a company has merged with another or gone out of business.

“There was a time when annual statements for pension schemes were not obligatory, and because some final-salary schemes dating from before the 1990s were non-contributory, people may not even have realised they were a member of a scheme. 

“The problem is that it becomes difficult to plan your retirement if you do not know how many pensions you have or how much they are worth.”

Out of the 4,000 adults LV surveyed in June, 20 per cent said they’d never heard of pension consolidation, and a lesser 18 per cent said they had considered it but never done it.

Bolton suggested moving older pensions to more modern schemes “can make sense” to reduce old charges, but this could mean losing a guaranteed annuity rate - one of a few perks which came with older pension products.

Alan Lakey, director of CIExpert, told FTAdviser most of his clients “don’t know the combined values of their plans and have no realistic idea of the level of income that they would be able to obtain”.  

He continued: “Part of the problem here is the requirement on insurers to allow for inflation. This means that 4 per cent growth falls to 2 per cent and with charges of, say 1.5 per cent per annum the net growth is 0.50 per cent. This confuses and annoys clients.”

Even for those more diligent consumers who look at fund growth tables, Lakey said they were easily “misled because they only show unit growth and not the actual yield”.

“Those consumers using advisers should be easily able to obtain the total plans, values and assumed pension income figures,” Lakey explained.