Six in 10 people don’t know their pension savings are invested, meaning thousands risk missing out on a “golden opportunity” to take control and possibly boost their pots.
Men are far more likely to know their pension is invested, with 51% aware of the fact compared to 28% of women, the research conducted by investment company Hargreaves Lansdown showed. But grasping a better understanding of pensions, and how to make them work harder, can make a “big difference” in retirement. Clare Stinton, head of workplace saving analysis at Hargreaves Lansdown, said: “If you have a pension, you’re an investor. Unfortunately, most people don’t realise this, so they risk missing a golden opportunity to take control of their retirement planning. Understanding more about how their pension is invested can help people appreciate its growth potential and make the most of their contributions.”
A key reason why people may not realise their pension is invested is that they’ve never had to make an investment decision about it. Subsequently, many may not be aware that they can take control of it.
Ms Stinton said: “When you are automatically put into a workplace pension by your employer, your money is typically placed into a default fund. These funds are designed to be solid, steady, and diversified, meaning your money is spread across a range of different investments, helping to cushion you from market ups and downs.
“But by nature, default funds are built to be a one-size-fits-all solution. They have to work just as well for the 22-year-old starting their first job as they do for a 50-year-old joining a pension scheme later in life.”
These two people have different timelines to retirement, as well as investment goals and possibly different values. The default fund is designed to be a solid, hands-off option, but they aren’t tailored to you individually.
So, what can you do? Most pension providers give you the choice to take more control, many offering alternative funds that may better match your risk appetite.
Ms Stinton said: “If you want to find out more, then you can speak to your provider to see what educational resources they can offer you, such as webinars, fund factsheets or articles. You may also wish to speak to a financial adviser to make sure you’re comfortable with how you’re invested.”
The pension expert noted that, generally, the greater the weighting to shares in a fund, the higher the risk, but also the potential for higher returns.
However, she pointed out: “With greater potential comes the likelihood of experiencing market fluctuations, so it’s really important you’re comfortable with the idea that investments can fall as well as rise.
She added: “It’s not just about risk and return, values matter too. More people want their pension to reflect their values and what they stand for. That’s why many providers now offer the opportunity to invest in responsible funds, letting you steer clear of companies linked to things like weapons manufacturing, human rights abuses, or environmental harm.
“Your pension is more than a pot of money – it’s an investment. The question is, is it working hard enough for you? Small decisions today can make a big difference to your tomorrow.”
