Analysis from Aviva has revealed that millions of workplace pension savers in the
Recent changes to state pension age, and the removal of the default retirement age, means people are now free to work for as long as they want or need. Previously, women would receive their state pension at age 60 and men at 65. Now, anyone aged under 41 won't receive it until they are 68.
But if someone is planning to retire later and fails to notify their pension provider, there can be serious consequences in terms of retirement income.
This outcome can occur because every default investment solution has a de-risking element. This means that as savers get closer to their retirement date, investments are switched from higher risk (higher return) funds, to lower risk (lower return) funds, to protect their retirement savings from sudden market moves.
Aviva's analysis shows that an average earner in an automatic enrolment scheme could miss out on more than
If a provider holds a retirement age that is too young, they will move investments to less risky assets too early. This means people lose out on investment growth when their pension pot is the largest.
If they hold a retirement age that is too old, they will keep the money invested in riskier investments for too long. If investments lose value too close to the planned retirement age there may not be time for them to recover their value. This means less money, or perhaps a last-minute delay to retirement plans.
With 47% of all workers saving into defined contribution pensions/2, and around 90% of those invested in default funds, this issue could affect a significant number of people.
The difference in returns can be wide. In Aviva's 'My Future' default solution, the five-year return for investments/3, at
Employers typically set the default retirement age for all their employees when they first set up their workplace pension. Members can then contact their provider and set their own retirement date.
"De-risking profiles have been carefully designed to balance risk and return in the approach to retirement. But this balance is thrown out of kilter if someone wants to retire at a different age than was originally assumed when they started their pension.
"Changing your retirement age is a really simple way to maximise the potential returns of your pension investments. Plus, it's an opportunity to check how much is in your fund and if you're on course to achieve the type of retirement you want.
"Many providers allow you to check and change your retirement age online. I'd encourage people to go online and check the retirement age their provider holds, and if doesn't match their current plans, change it."
1/ Loss for an individual earning
* Retirement age set to 68, life styling begins at 53 - Total fund value at 68 is
* Retirement age set to 65, life styling begins at 50 - Total fund value at 68 is
* Retirement age set to 60, life styling begins at 45 - Total fund value at 68 is
2/ Employee workplace pensions in the
3/ Based on returns to
* Returns at retirement - 5.7%
* Returns 5 years prior to retirement - 6.8%
* Returns 30 years prior to retirement - 8.9%