DB pension myths persist amid low member engagement

A “staggering” 75 per cent of defined benefit (DB) pension savers, around 7.5 million savers, do not know that their pension is protected by the Pension Protection Fund (PPF) if their employer fails, research from the lifeboat has revealed.

The PPF warned that this lack of awareness could result in inappropriate DB transfers, revealing that 60 per cent of 35-54 year olds have considered transferring out of their scheme due to concerns of a high-profile insolvency.

Confusion around DB pensions was also found to be a concern more broadly, as only 49 per cent of DB holders were concerned with knowing how much their pension is worth, with 24 per cent assuming it will be the same amount as their annual salary.

A third (33 per cent) of DB pension holders were concerned they will not have enough to live on in retirement, which the PPF highlighted as demonstration of the lack of understanding as to what a DB pension provides.

Indeed, the lifeboat found that nearly two-fifths (18 per cent) of those surveyed were unaware that a DB pension provides retirement income for life, rising to 42 per cent for 18–34-year-olds.

A number of DB 'myths' were also revealed, as 30 per cent of those surveyed believe that they had to be working for their employer at the time of retirement to receive the DB pension, while 29 per cent were unsure if they could access a DB pension before they retired, increasing to 40 per cent amongst women.

In addition to this, over a third of DB pension holders were also unsure if they could transfer out of their DB pension scheme.

Despite the lack of understanding, two-fifths (40 per cent) of DB pension holders had discussed their pension pots and savings as a whole with a financial adviser, whilst almost half (48 per cent) had never met with a financial adviser to discuss their retirement savings.

More than half (58 per cent) of DB pension holders said that they were not concerned about keeping in touch with their pension scheme administrator, rising to 76 per cent amongst over-55s.

Commenting on the findings, PPF chief customer officer, Sara Protheroe, said: "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.

“Getting retirement ready is essential, and the earlier you do this in your working career, the better. This is why we want people to make 2022 the year they engage with their pensions, regardless of age.

"Our findings suggest that many people could be heading into retirement without enough income to support their plans or could even be missing out on retirement income they’re owed due to lack of understanding and engagement."

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