People with final salary pensions are being encouraged to get “retirement ready”, as research indicates a lack of awareness could mean some end up missing out on the income they are owed.
The Pension Protection Fund (PPF) said the findings from its survey show an acute lack of understanding and engagement among some pension scheme members about their defined benefit (DB) pensions.
DB pensions, such as final salary schemes, are often described as “gold plated” as they promise savers a certain level of income when they retire.
The PPF is funded by a levy charged to pension schemes and pays out compensation for lost pensions if an employer collapses. It protects close to 10 million members belonging to more than 5,200 pension schemes.
Its research, based on a survey of 2,000 DB scheme members, found only 49% were concerned about knowing how much their pension scheme is worth.
However, a third (33%) were concerned about not having enough to live on in retirement.
The PPF said savers may not be able to plan for their retirement without accurate information.
More than a third of DB pension holders meanwhile were unsure if they could transfer out of their pension scheme.
The PPF said DB pension holders must receive financial advice if they are considering transferring out of their scheme and their benefit is worth more than £30,000. It said that administrators can provide key information on pension values, scheme benefits and possibly even scheme rule changes that may affect what members receive when they retire.
Nearly half (48%) of DB pension holders surveyed had never met a financial adviser to discuss their retirement savings.
The research also found three quarters (75%) of DB pension savers did not know their pension was protected by the PPF if their employer failed.
Sara Protheroe, PPF chief customer officer, said: “It’s extremely worrying that so many people with DB pensions are unaware of the valuable protection available to them if their employer failed, and this may result in inappropriate DB transfers…
“We already know that the nature of retirement is changing, with people working and living longer, so it’s really important that individuals make 2022 their year to get retirement ready and take the time to understand how their pensions can help them achieve their retirement goals.”
Here are the PPF’s tips for getting retirement ready in 2022:
– 1. Engaging with your DB pension provider is key. A good place to start is to check any correspondence you may have received from your pension scheme. Some schemes provide an online service where you can check your benefits on their website.
– 2. Speaking to a professional financial adviser is a good option to understand how your savings and DB pension can work together to fund your retirement plans. Seek advice early as an adviser will help you decide if this is the best option for you based on your savings and goals and you will still have time to make changes if you need to before you retire.
– 3. Any DB pension that you have had throughout your working career will be yours, regardless of whether or not you are currently working for that employer. If you have lost the correspondence from a previous scheme, there are several avenues you can explore. The Pensions Tracing Service is a free government service designed to help people who have lost track of their pensions. Secondly, if the employer who offered you your DB pension is still in business, they should be able to help you get in touch with your pension scheme. Or, if you know your former company was taken over by another business, contact the new company’s HR team as they should be able to tell you who to contact about your pension.
– 4. If you are still employed by the company where you have your DB pension, your HR team is also a good starting point if you want to engage more with your pension. They will be able to direct you to find out how much your DB pension could be worth, as well as share further information on your scheme provider. You can also speak to them about topping up your pension through an additional voluntary contribution (AVC) scheme.