Over seven out of 10, 71 per cent, of defined contribution pension holders are unaware of the charges they are paying, the Financial Conduct Authority has found.
According to the FCA’s Financial Lives Survey 2017, published in its recent March Data Bulletin, an average of 71 per cent of UK adults with DC savings are not aware of any charges on their pension. Over six in 10, 61 per cent, of 45-54 year olds are unaware of any charges, while 75 per cent of those aged 35-44 are also unaware of these additional costs.
In addition, the FCA highlighted that a further 48 per cent of DC savers, who have received advice in the last 12 months, do not have an awareness of any charges on their pension.
When asked about their pension statements, just over half, 52 per cent, of DC savers received and read their statement, rising to 72 per cent for those 55 and over who have not yet retired. Fourteen per cent received a statement but did not read it, while a further 26 per cent of people claimed to not recall receiving a statement.
Looking further into consumer interest regarding pension statements, the tendency to read annual statements grows with pot size, the FCA said. On average, however, 75 per cent of all UK adults who have not retired have not considered much or at all, how they will manage financially in retirement, 32 per cent of DC pension holders do not know the size of their pension savings and a further 53 per cent have not reviewed how much their pension pot it worth in the last 12 months.
Also considering pension pot sizes, 60 per cent of 18-24 year olds with DC pensions say they have less that £5,000 in their pot and 51 per cent of 25-34 year olds state they have a pension pot under £10,000. This is indicative of the “relative immaturity” of the UK auto-enrolment environment, the report highlighted. Only 13 per cent report having a DC pot of £100,000 or more.
When it comes to both contribution figures and what their pension is invested in, the majority of DC savers are also considerably under-informed. Of the 45-54 year olds surveyed, 35 per cent do not know how much they or their employer are contributing, while of those aged 35-44 and those 55 and over and not retired, 43 per cent do not know.
“Overall, the findings indicate that people tend not to review the adequacy of their defined contribution pension until they are very close to making their decisions,” the FCA commented.
Almost half, 49 per cent, of UK adults with DC pots did not choose where their contributions were invested, while 16 per cent did and 22 per cent actively opted into a default fund. Fourteen per cent are unaware of whether or not they chose where their contributions are invested.
From these the FCA assessed that: “Those who report a high level of knowledge about financial matters are three times as likely to have a high level of trust in their DC pension provider than those with lower financial knowledge.”
Furthermore, three years on from the introduction of the pension freedoms, the FCA also highlighted in its report that those who have accessed their defined contribution pension in the last two year and who report taking financial advice in the last 12 months are most likely to have entered into income drawdown. A total of 40 per cent of people who took advice entered drawdown compared to 20 per cent of all UK adults that have accessed a DC pension in the last two years.
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