One justifiable criticism of the pensions world is a tendency to hide clear explanation behind the convenient option of jargon.

If you’ve been reading our blogs, client communications, articles and social media posts, I’m confident you wouldn’t accuse Punter Southall Aspire of this oversight!

I raise this to explain my latest thoughts on an issue which remains widespread across the industry - the reliance on a ‘default’ option.

Triple default demystified

Default, to most people, means failing to pay a loan or to meet an obligation but it also has another meaning which is widely accepted across the pensions landscape.

Here, it is: “a preselected option adopted by a computer programme or other mechanism when no alternative is specified by the user or programmer.”

In other words, a default is an action chosen for you and it’s this I want to focus on.

“Triple defaulters” (I know you know what “triple” means so I won’t labour the point) is the term used to describe the lack of choices people make about their defined contribution pension schemes.

First, they typically adopt the default retirement age of their workplace pension scheme. For most, that means 65 even though we know the state pension age will be 67 from 2028.

So even by adjusting this by two years, that can have a measurably positive impact on how much you can save.

Secondly, they (between 90 and 95 per cent, in our experience) find themselves in the default investment fund despite the availability of various other options which factor in the kind of risk with which they are comfortable.

And the third element in the triple default is how much they contribute. Again, this is typically set by default. For auto-enrolment, the minimum is often five per cent from the employee and three per cent from the employer.

Computer says doh!

So, you might ask, if someone else is doing it for me, why should I worry?

The answer is because you can alter the course your pension is taking. It’s not necessarily best left to an algorithm to determine your future after work. Your decisions can help to shape that reality.

There are different options, best termed as minimum, moderate and comfortable which describe how you would like to see your retirement.

Very few consciously want their retirement to reflect the bare bones of “minimum” but are on course for that option unless they take a more engaged approach to how they are saving for retirement.

Our concern is that while people are putting away something for retirement, the triple default tendency means that it may well end up not being enough.

Debunking the default

And while we debunk the default, I also want to reframe the argument that only those who are comparatively well off can afford the advice of a financial planner and achieve that “comfortable” status in retirement.

It’s largely true but the growth in guidance and accessible support to help everyone make better decisions is in plain sight. Apart from our website and my colleagues, there are so many opportunities to be better informed about your future – and people who can help.

As I’ve laid out, more always needs to be done for those who need more help and this remains a challenge for all of us.

For more information about the support we offer around making decisions about your pension and investments, get in touch.

Posted by Peter Selby

Topics: Insights & Advice, Pensions, financial planning

Questions

Ask The Experts

Want to get in touch?
Just fill out the form below and we will be in touch shortly.

Financial Planning: How we help

investment-graph

Wealth management

Planning with a goal in mind is critical in today's complex financial world. We tailor solutions that match your future vision.

plan
life-assurance

Life assurance

The right cover for you and your family helps to give you peace of mind, whatever life throws at you.

check
mortgage

Mortgages

Mortgages can be complex and confusing. We'll equip you to find the right one for your next move or investment.

Find out more
pre-retirement

Before retiring

The earlier you can start saving for retirement, the more you'll potentially benefit. We'll help you with every step.

get ahead
post-retirement

After retiring

Our financial planners make your money work for you once you've stepped back from working hard to earn it.

learn
inheritance-tax

Passing on your wealth

We help you navigate the complexities of estate and inheritance tax (IHT) planning to help you dispose of your assets as you wish.

talk to us