Nearly 40% of defined contribution scheme members are losing an estimated £225m from their pension pots by failing to take advantage of matching contributions from employers.
Research from Xafinity Consulting shows pension scheme members – particularly younger people – are failing to take advantage of what is essentially free money in their pension, leading the firm to question the level of financial education available.
Xafinity points out the low take-up of maximum matching contributions indicates a degree of financial ignorance, however it points out it could also be attributed to low disposable income, particularly among younger people where the repayment of student debt means their outgoings are higher than their outgoings.
The firm says well-designed, managed and communicated arrangements may provide the flexibility to allow members to make lower matched contributions while not benefiting form the full employer payments.
However, it says while this may encourage some employees to join the scheme, it points out many individuals are simply failing to address the retirement issue early enough, possibly on affordability issues.
But it says considering a general “rule of thumb” suggests people need to save at least half their age as a percentage of their salary into a pension for a ‘decent’ income in retirement, it is important that financial education is improved.
Pat Wynne, director at Xafinity, says: “Individuals need to be encouraged to think about the level of income they will require in retirement, making use of modelling tools to calculate how much and when to save, taking into account their attitude to risk and when they wish to retire.”
However he warns: "This may in fact mean making contributions greater than the employer is prepared to match."
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