Pension savings, especially when all your contributions are made automatically, can easily slip a person’s mind for decades until they need to start calling on their funds. However, it might be too late by then.
PensionBee experts are warning that “pension disengagement” rates are on the rise and can leave your savings leaking cash for decades before you notice.
A new report from the provider highlighted the top three pension disengagement mistakes people make that could cost a total of £730,000 by the time you reach your golden years.
Poor management
This mistake alone can cost over £40,000 by draining your savings through unnecessary fees – but how can you tell when they are unnecessary?
Paying annual fees of 1% when you start saving can cut your pension by over £17,000 in the long-run compared to 0.7% annual fees. The key is in how it all accumulates at the end of the day.
Forgetting about pension pots entirely, for example, when you move jobs, can be even more costly so it is best to stay on top of all of your pension funds, even if you think it is not worth much.
Leaving behind a pot of £10,000 at 30 can cost you over £23,000 when you get to retirement age.
Ineffective investing
When you first join a pension provider, you are usually put into a default fund which is designed to be convenient and relatively safe, but its main purpose is to simply hold your funds while you choose a better investment strategy for yourself.
Unfortunately, PensionBee analysis found over 90% of savers are still in their default funds that are not maximising their investment growth. This could mean you are losing over half a million pounds before you hit retirement.
The experts explained: “A saver achieving just 3% annual investment growth could accumulate £194,185 by age 68. However, those in a fund achieving 7% growth could amass £697,247—a staggering £503,061 difference.”
Too little contributions
Many savers are only investing the minimum required in their workplace pension, but adding just a few more pennies whenever you can has the potential to catapult your retirement fund.
This can also include opting out of your workplace pension scheme and delaying the start of your pension savings, which may have cost tens of thousands by the time you retire.
To keep these hundreds of thousands from leaking out of your savings, the PensionBee advisors recommended taking three simple steps:
- Checking your pension regularly
- Being proactive when it comes to investment strategies and moving pensions
- Learning more about investing
The expert’s analysis found people who do these tasks regularly held around three times more in their pensions than people who didn’t. Lisa Picardo, Chief Business Officer UK at PensionBee, noted: “Our research shows that small, early actions can make a profound difference.”
