Nine billion pounds of savings invested through auto-enrolment schemes will be wasted every year from 2019 onwards due to unsuitable default funds, new research has claimed.

The report by Decision Technology (Dectech) claims that default funds, of which the majority of people are enrolled in, are not able to meet the varying needs of individuals. The study found that of the 61 per cent of people who are aware they have a workplace pension, 80 per cent remain in the default fund. Therefore, estimations show people will lose out on additional savings of £700 a year from 2019 because they do not actively engage with their savings.

Commenting, Dectech director Henry Stott said the findings show a one-size-fits all approach to auto-enrolment is damaging the futures of millions of people. “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.”

As a result of the findings, Dectech is calling on the 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.

“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,” Stott added.

Share Story: