Risks of set and forget pensions

Most people stay in the default fund their scheme chose for them and never look at it again. Defaults are built for the average member, not for you. They can be a reasonable starting point, but they are not matched to your goals, your other savings, or how much risk you are willing to take.
There is a second problem I see often. People treat pensions like bank accounts. They amalgamate several pots into one without understanding what they are actually moving. The pull is simply to have everything in one place. But a pension is not a current account. Moving from one fund to another can change your charges, your investment mix, and even valuable guarantees you did not know you had. Tidiness is not a reason to switch. The real issue underneath both is drift. Your circumstances change over the years, and so does your appetite for risk. A fund that suited you in your thirties may be wrong in your fifties. Yet the money often sits where it was first placed.

Investing in a pension is a good thing and the earlier you start the better. But, treating pensions as set and forget has real risks and disadvantages. If you invest in a pension for years without reviewing whether it is on track to deliver the retirement lifestyle you want then you are adopting a bit of a hit and hope approach.

Default funds in pensions are not inherently bad, but they are designed for the average saver and are not linked to your specific objectives of when you want to retire, your desired lifestyle, your risk appetite and any other savings or investments you have. As retirement approaches, your investment strategy should be reviewed to ensure the approach remains fit for purpose.

It is common for people to accumulate multiple pensions from different employers, each will have a different investment approach. Reviewing them together and potentially consolidating can bring greater clarity of whether you are on track or need to take different actions.

Yes, absolutely. “Set and forget” pensions are one of the quietest financial mistakes people make because nothing feels wrong at the time. The contribution goes out, the statement arrives, and people assume the pension is somehow taking care of itself.

Default funds are not always bad, but they are not personal. They do not know your retirement age, your income needs, your attitude to risk, your other assets, your mortgage, your family situation or whether your plans have completely changed since you first joined the scheme.

It is very common, especially with workplace pensions. People move jobs, collect old pots, ignore the paperwork and only engage when retirement starts feeling close. By then, years of poor fit may already have cost them growth or exposed them to the wrong level of risk.

My advice is simple: do not obsess over your pension every week, but do not abandon it either. Review it properly at least once a year and whenever life changes.

The UK has a major issue with millions of people leaving their pensions in default funds, and it bites them in retirement. 99% of people who have pensions with NEST and 98.61% with The People’s Pension are invested in default funds.
Analysis of the performance of over 13,000 pension funds in the last five years shows that the difference between the best and worst performing fund is worth almost £140,000, based on a starting amount of £50,000, which has a significant impact on your retirement pot.
Default funds don’t consider individual aspirations for retirement or individual attitudes towards risk, and they may lower the risk much earlier than you wish, which could see you miss out on years of growth.
Forgetting pensions also causes another problem. More than £30 billion is held in lost pensions that haven’t been claimed in the UK, so it’s imperative to at least keep track of how many pensions and which providers you are with or else you could be missing out on free money.

Set and forget isn't just a problem with investments and pensions. It's a problem with financial plans.

Working out how to optimise savings, investments and pensions towards achieving longer-term financial and life goals, alongside balancing the wants and needs of today is no mean feat. It requires time, knowledge and the inclination to do it now and forever more, as things change in your life and the wider world.

Working with a financial planner to take on this role can free up time and mental energy for things, and in our view, is highly likely to get better outcomes over the long term.