Beware auto-enrolment waste, move your pension pot out of default fund

NEW research from management consultancy and behavioural science experts Decision Technology (Dectech) claims that £9bn of the money invested in auto-enrolment default funds will be wasted each year from 2019.

Dectech’s Damage by Default report highlights that the default funds into which people are automatically entered cannot meet their varying needs. As a result, it estimates each employee stands to lose out on additional savings of £700 a year from 2019 because they do not actively engage with their pension savings.

The firm is calling for the UK government, pension providers, and employers to act now in order to overcome the engagement challenge and ensure employees get the best outcomes from their retirement savings.

Henry Stott, director at Dectech, said: “Our findings show that the one-size-fits-all approach to autoenrolment that has been adopted to date is damaging the futures of millions of people. Yes, auto-enrolment has successfully managed to get more people saving into a workplace pension, by using people’s tendency towards apathy to discourage them from opting out. But that same apathy is leaving people invested in the wrong funds and so they are missing out on vital money in retirement. Unless engagement is improved, auto-enrolment will do little to solve the UK’s retirement finance crisis.

“While we’re pleased the DWP has

included engagement as one of the key themes of its auto-enrolment review, it’s concerning that much of the narrative is focused on contributions rather than fund choice. We estimate people could increase their income in retirement by an average of £180,000 if they left the default and chose a more appropriate fund in which to invest their money. It’s clear that more work is urgently needed to address the apathy problem and reduce the waste of savings.”

Dectech’s study finds that of the 61% of people who are aware they have a workplace pension, 80% remain in the default fund. The overwhelming majority of these people (95%) have never tried to change their fund, while 91% do not know where their funds are being invested and 80% do not know how much is in their pension pot. A third (33%) do not know who their pension provider is.

Mr Stott added: “Our research has exposed what is truly an epidemic of apathy around pensions. By failing to properly engage with their pension, employees are likely to retire with a much smaller pot than they could have had. As a result, millions of people will miss out on their dream of a secure and rewarding retirement. But employees are blissfully unaware they could increase their savings with very little effort by simply choosing to move their pension out of the default fund.

“The government, pension providers, and employers all have a role to play in driving this message home.”