Members stay with their pension schemes

The number of people leaving their pension schemes fell to its lowest level this year, while enquiries about the current value of the pensions rose to its highest level, according to Aon Consulting.

The research included 350,000 scheme members from 35 UK defined contribution (DC) and defined benefit (DB) schemes. The fall appears to indicate increased confidence in private sector pension schemes and a growing interest in planning for retirement.

Members of pension schemes showed more interest in the current value of their fund, with enquiries up 26 per cent from June. The number of members leaving their pension scheme also fell by 34 per cent during the third quarter.

“As with predictions for the economic recovery, the shape of member confidence levels in pensions is hard to call but, certainly compared to a year ago or even last quarter, people seem to be much more engaged about their pensions than they were,” said Colin Hamilton, commercial director at Aon Consulting.

“Greater awareness may well be due to the economic environment, but it may also come down to the fact that messages about the importance of saving for retirement are getting through to members more effectively.”

In another study released by Aon Consulting earlier this week, pension funds had fallen by £18bn in October. Although increased enquiries in pensions could be the result of the recent rally in the stock markets, many pensioners still remain worried.

Mushtaq Jaigirdar of Yellowtail Financial Planning says the statistics should be taken with a grain of salt, citing the underlying investment of the pension arrangement as the main reason members left in the first place.

“We should concentrate on the underlying investment rather than the pensions per se. The pension is more of a wrapper, as it provides the investment to grow in a tax-efficient environment. When people began seeing a huge fall in their statements in comparison with previous years, it prompted them to leave their schemes.”

Mr Jaigirdar said members labelled the pension rather than the investments as the reason behind the drop in value.

But by leaving the arrangement, they also end up losing out on the benefits a superior investment vehicle, he added.

“Pensioners have a choice of what they can do with their investment scheme. For instance, if the stock market becomes more volatile, they can select investments that are less risky, or move into more defensive investing.”

Mr Jaigirdar said those who are informed properly and provided with the relevant information are less likely to leave a pension arrangement.

The research also revealed that the announced rise in the minimum retirement age from 50 to 55 has not led to a subsequent rise in retirement activity, which Mr Hamilton attributes to “time it has taken for schemes to fully communicate this change to members.”

“We expect to see an increase in early retirement projections, followed by an increase in settlements, in the first half of 2010,” he said.