I have been enrolled in my workplace pension plan for the past 10 years only to find that I have been losing £1,000 every month since April of this year even though I have not decided to invest.
They do this without my knowledge or consent. How can I get help.
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Stock market crashes: My pension was invested without my knowledge and she is losing £1,000 a month
Steve Webb says: I fully understand that the recent market crashes have been very upsetting for many people, and that this is especially hard on those who are close to (or in) retirement.
However, I think it’s clear from your question that you haven’t been properly explained how pensions work.
So let me talk about what happens “under the hood” when you receive a pension from your place of work.
The first thing to say is that from the very beginning you could refuse this arrangement.
While the law required your employer to choose a pension, enroll you in it, and pay contributions to it, you could always opt out, and you still can opt out if you want.
However, the vast majority of people do not refuse, and the reason for this is that in almost every case, this is a great deal.
Steve Webb: Find out how to ask a former Pensions Minister about your retirement savings in the box below.
If we focus only on the legal minimum contribution level, you have to pay 5 percent of your wages and your employer has to pay 3 percent.
(The legal minimum actually refers to the £6,240 to £50,270 range of “eligible income” and not your total salary, but for the sake of simplicity, I’ll only talk about your “salary”).
Suppose, for example, that these minimum contributions are £50 from you each month and £30 from your employer.
In total, you receive £80 in retirement. You also get £10 in tax relief on your contributions, meaning that (in most cases) that £80 will only cost you £40 of your wages.
It’s such a good deal that if the value of the fund hadn’t halved, you’d have more money than you invested.
But in most cases, you will get the full benefit of the employer’s contribution, plus the investment boost.
This is because the money you and your employer pay is invested. It doesn’t just lie in a cash account like a bank account bearing a ridiculous interest rate.
Instead, it is used to purchase a range of assets, including stocks (both in the UK and globally), bonds (loans to government or businesses) and other assets such as real estate.
In most years, these assets will appreciate in value, increasing the size of your pension fund.
Although you don’t say how old you are, for most people investing in retirement is a long-term business.
For example, if you’re making contributions in your 40s, it could be 20 or more years before you retire, and the last thing you want is for your retirement basket to just sit for decades without even keeping up with inflation.
The disadvantage of investing in growth is that it takes an element of investment risk. You are probably familiar with advertisements that say that investments “can both rise and fall.” And it was a bad year.
But in the decade that you’ve been saving for retirement, I have absolutely no doubt that you still have significantly more in your retirement basket today than you paid in, even after the recent market crash.
If you’re very sure you don’t want to take investment risk, you have the option to move your money through your pension fund from the “default fund” (where your money will go if you don’t do anything). active choice) and to another fund.
Your pension provider may offer a lower-risk fund that you are more comfortable with. But you should be aware that during normal times you will probably also make lower profits if you do this.
Back to where I started, I don’t want to belittle the suffering the market downturn has caused you and others.
And all pension providers will be watching to see how their funds have performed this year and whether they have struck the right balance between investing in growth and risking the value of their investments from time to time.
But I have no doubt that you would have achieved much more if you had been receiving a pension for the last 10 years, taking advantage of employer contributions, tax credits from the government and investment returns that you have enjoyed, than if you simply shove money in a jar or under a mattress.
Ask Steve Webb a question about retirement
Former Pensions Minister Steve Webb is the uncle of This Is Money Agony.
He’s ready to answer your questions whether you’re still saving, in the process of quitting your job, or juggling your finances into retirement.
Steve left the Department of Work and Pensions after the May 2015 elections. He is currently a partner in the actuarial and consulting firm Lane Clark & Peacock.
If you would like to ask Steve a question about pensions, please email him at [email protected]
Steve will do his best to reply to your message in the next column, but he will not be able to reply to everyone or conduct private correspondence with readers. Nothing in his answers constitutes regulated financial advice. Posted questions are sometimes edited for brevity or for other reasons.
Please include a daytime contact number in your message – this will be kept confidential and will not be used for marketing purposes.
If Steve can’t answer your question, you can also contact MoneyHelper, a government-supported organization that helps the public for free with pensions. It can be found here and his number…
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