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Warning – if your work pension has the wrong retirement date, it could cost you £1,000s

Millions of savers risk missing out on £1,000s from their final pension pot if their provider doesn't have their correct planned retirement date, it's been claimed – so check your date now to avoid losing out.

People with workplace pensions (including those who were auto-enrolled) in some cases risk losing as much as £10,000 from their pension pot if they don't keep their provider up to date, new figures from pensions giant Aviva show.

Many people's pension pots are automatically moved from higher-risk to lower-risk funds for a certain period before their planned retirement age – it can be up to 15 years in advance – to safeguard their pension pot against market crashes or downturns. But with many increasingly likely to work into their 70s, if you end up retiring later than your planned retirement age, your pot could end up sitting in a low-risk fund longer than you intended it too.

Equally, if you end up retiring earlier than your planned retirement age, your pot may not be moved to a lower-risk fund for the period you expect it to be. So to ensure your pension pot is invested as it's designed to be, it's important to check your provider knows your planned retirement age.

Remember, having your pension pot invested in a higher-risk fund isn't necessarily a good thing – while your gains could be higher, so could your losses. So you need to weigh up the right approach for you. But according to Aviva's research, a typical saver is likely to gain overall if their pension is invested in a higher-risk fund for longer.

Want to start a pension pot? Read how in our Personal pension need-to-knows guide.

Why could pensions savers lose out?

Many people with defined contribution pensions (the most common type of workplace pension, where both you and your employer regularly contribute a set amount to your pot) will have had their savings placed in funds with a function known as 'lifestyling' or 'de-risking'.

In this scenario, as a saver approaches retirement, their pension pot is gradually moved from a medium/high-risk fund to a lower-risk fund in order to protect it from any sudden dips in the market. This move is triggered by the retirement age set with your provider:

  • If you end up retiring much LATER than the retirement age set with your provider, then the move to a lower-risk fund will occur prematurely. A lower-risk fund, while intended to be less exposed to market crashes, may generate less growth – and for a big pension pot this could mean missing out on £1,000s.

    Aviva calculates that a typical earner in an auto-enrolment scheme could miss out on £4,000 if their retirement age is set at 65 but they delay hanging up their boots until 68. For those whose default age is set at 60, this could reduce your pension pot by up to £10,000 – something more likely to affect women, due to the way default retirement ages were set in the past.

  • Conversely, if you retire BEFORE your planned retirement age, that would mean your pension pot is in a higher-risk fund for longer than planned, leaving it more exposed to a fall in the stock market.

It's unknown exactly how many pension savers are likely to be affected by the issue, but Aviva says it could be  "millions" – around 47% of the UK workforce have a workplace pension, 90% of which are invested in 'default' funds (ie, funds you don't specifically choose – many of these have the 'lifestyling' option and so could be affected by this issue).

How can I check if my pension is set to move to a lower-risk fund?

The easiest way to check whether your pension fund has the 'lifestyling' function is to dig out your pension documents, where it should explain whether your pot will automatically move to a lower-risk fund.

If you can't find the relevant information, then contact your provider to check.

How can I make sure my planned retirement age is correct?

Employers normally set a default retirement age for all their employees when they first set up their workplace pensions. However, employees can contact their pension provider and set their own retirement date.

Many providers allow you to check and change your retirement age online. If you can't see how to do this, check your pension documents for details on how to contact your provider.

Remember, many people who have had more than one job during their working life will have more than one pension pot. If this is you, then ensure you check your default retirement age and what kind of fund your pots are invested in with each provider.

See how to Build your own pension dashboard and keep tabs on your retirement savings in MSE Steve L's blog.

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