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Pension problems: four savings questions answered

Author of 'No Spend Year' answers the four pension questions she is most often asked by friends and family.

Pension problems: four savings questions answered

Pensions are complicated and a bit dull so it’s no surprise that people’s eyes glaze over when you start talking about them.

Countless conversations with friends, family and colleagues have revealed to me that although people want to save for retirement, they’re confused about where their money goes when they save it into a pension and that they’re worried about losing their cash.

Here’s a rundown of the top four questions I’ve been asked about pensions:

Where is my pension money?

Lots of people assume that their employer is holding on to their pension cash but they don’t. If you’re a younger saver (which I’ll assume you are) then you are probably saving into a defined contribution (DC) pension scheme (I’ll explain what that means later).

This means your employer has picked a pension fund for you to save into. It could be run by an insurance company, an independent pension company, or the government-back National Employment Savings Trust (Nest). 

Your savings are held in this pension and invested. You can pick where your money is invested if you want to but if you don’t make a choice – and 99% of people don’t – then you are placed in a ‘default fund’ where your money is invested for you.

The pension fund invests the money because they want it to grow. If they just left it sitting in cash then inflation (or the cost of living) will erode how much your money is worth when you retire and it wouldn’t have been worth saving it.

You can find out where your money is invested by asking your pension provider – your HR department should be able to give you details if you don’t have them. The pension will also give you a list of pension options too so you can decide to take more or less risk, invest in ethical investments, or invest in something that’s important to you.

Where does my pension go when I change job?

More than once someone has asked me if they lose all their pension money if they change job. The answer is: no, definitely not!

If you move jobs your new employer will put you into their workplace pension scheme and your old pension will just sit there, invested in whatever it is currently invested in. Your old employer obviously won’t pay any more money in but you will still be able to invest the money in the old pension wherever you like.

The only problem is that this system leaves you with lots of little pots of money all over the place and in the future you may want to consolidate these pensions into one big pot (although this is a costly exercise).

The government did try and introduce a ‘pot-follows-member’ plan where your pension would jump from employer to employer building up all your pension savings into one large pot. However, like everything that cost money and it was abandoned.

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