Why pension pots in a pandemic need extra care
Laura Stewart-Smith outlines how the pandemic has created issues for managing ‘homeless’ pension pots.
The past year has been an extraordinarily difficult time for UK businesses, with extensive job losses and permanent site closures in key sectors. Despite the furlough scheme, many companies have faced shuttered industrial sites and warehouses. As the coronavirus eliminates business revenues and jobs, it’s possible that millions of employee pension pots are adrift in this unprecedented economic storm. Let’s examine the impact on individuals and the key points to communicate to employees.
Redundancies and career changes
Last year, redundancies hit a 20 year high 1, topping the financial crash of 2008, it’s not surprising that a huge number of workers are finding themselves in an ever-changing situation. The pandemic has also brought about a shift in people’s mindsets, with research suggesting that the last 12 months have acted as a catalyst for people to change their working arrangements. Last September, Aviva research 2 found that 53% of the working population planned to make changes to their careers over the following year as a direct result of the pandemic.
For some, it will be a change of role with a new company. There’s also around 5 million people who plan to turn a new hobby into an income stream 2. As a result, it’s likely we might see people leaving their company pension schemes behind, either to join a new employer or the 4.8 million self-employed in the UK. This could leave a substantial number of pension pots in need of care and attention.
‘Lost’ pension pots as vaccinations roll-out
A year ago, the Association of British Insurers (ABI) 3 estimated over £19 billion was ‘lost’ in forgotten pensions. Often, when people move on, they either forget about the money they have saved or lose contact with their pension scheme.
Recently, the Pension and Lifetime Savings Association stated that ‘the number of small deferred pots in the pension system, which tend to result from savers moving jobs and losing track of their existing pension savings, has been increasing since the introduction of automatic enrolment in 2012’. A new industry working group was established to tackle the small pots pension problem, of which Aviva is a member.4
Three important points to communicate to employees
It’s essential that former employees ask the right questions and get good answers.
Here’s a quick guide:
- You don’t lose the benefits when you leave the scheme. You can expect to receive a letter from the scheme administrator shortly after you have left your employer, which will explain the options available to you. In most cases these options are not time-bound so you can allow yourself some time to think through how you want to move forward.
- Take time to tidy up loose ends. Make sure the scheme administrator has your contact details correct — especially your new email address. Make it easy for them to contact you with important information about your pension.
- Regularly review your retirement income. It might be that you decide to continue paying into a pension or combine your pensions at some point, but whatever you do, don’t forget about it. There are online tools available to help make this easier. If you go self-employed, saving into a pension can be a more difficult habit to maintain. There is no-one to choose a pension scheme for you, no employer contributions and irregular income patterns, which can all make saving more difficult.
Laura Stewart-Smith, Head of Workplace Savings and Retirement at Aviva, is diploma qualified in financial planning and has spent the last 15 years working in workplace benefits. She is an Aviva spokesperson specialising in employee engagement and financial education and is regularly featured in the media.