My pension was invested without my consent and it is losing £1k a month

I have been enrolled in my workplace pension scheme for the past 10 years only to find that from April this year I have been losing £1,000 every month even though I didn’t choose to invest.

They do it without my knowledge or consent. How can I get help?

SCROLL DOWN TO FIND OUT HOW TO ASK STEVE YOUR PENSION QUESTIONS

Stock market falls: My pension was invested without my knowledge and it's losing £1k a month

Stock market falls: My pension was invested without my knowledge and it’s losing £1k a month

Steve Webb replies: I fully understand that the recent market declines have been very upsetting for many people and that this is especially difficult for those nearing (or in) retirement.

However, from your question I think it is clear that the way pensions work has not been effectively explained to you.

So let me go through what goes on ‘under the hood’ when you are enrolled in a workplace pension.

The first thing to say is that right from the start you have been free to opt out of this arrangement.

Although the employer was required by law to choose a pension, enroll in it and make contributions to it, you were always free to opt out, and you remain free to opt out if you wish.

However, the vast majority of people do not opt ​​out, and the reason for this is that in almost all cases it is quite a lot.

Steve Webb: Find out how to ask the former pensions minister a question about your pension savings in the box below

Steve Webb: Find out how to ask the former pensions minister a question about your pension savings in the box below

If we focus only on the statutory minimum contribution level, you must contribute 5 percent of your salary and your employer must contribute 3 percent.

(The legal minimum actually relates to a range of ‘qualifying income’ between £6,240 and £50,270 rather than your total salary, but to keep it simple I’ll just talk about your ‘salary’).

For example, suppose these minimum contributions amount to £50 from you each month and £30 from your employer.

In total you will receive £80 in pension. You also get £10 in tax relief on your contributions, meaning that £80 has (in most cases) only cost you £40 out of your take-home pay.

This is such a good deal that unless the value of the fund fell in half, you would have more money than you put in.

But in most years you will get the full benefit of your employer contribution plus investment growth on top.

This is because the money you and your employer pay in is invested. It doesn’t just sit in a cash account like a bank account that earns a ridiculous interest rate.

Instead, it is used to buy a mix of assets including shares (both UK and around the world), bonds (loans to the government or to businesses) and other assets such as property.

In most years, these assets will tend to grow in value, increasing the size of your retirement fund.

Even if you don’t say how old you are, for most people investing a pension is a long-term business.

For example, if you deposit in your 40s, it could be 20 years or more before you retire, and the last thing you want is for your pension pot to just sit there for decades and not even keep up with inflation .

The disadvantage of investing for growth is that an element of investment risk is taken. You will probably be familiar with the ads that say investments ‘can go up and down’. And it has been a bad year.

But over the decade you’ve been saving for retirement, I have absolutely no doubt that there is significantly more in your pension pot today than you paid in, even after the recent market declines.

If you feel strongly about not being exposed to investment risk, you have the option of moving your money with your pension company out of the ‘default fund’ (which is where your money goes if you don’t earn any active choices) and into a other fund.

It may be that the pension provider offers a lower risk fund that you may be more comfortable with. But you should be aware that in more normal times you will probably also get a lower return if you do this.

To return to where I started, I don’t want to diminish the distress that market declines have caused you and others.

And all pension providers will be looking at how their funds have performed this year and whether they have struck the right balance between investing for growth and risking a periodic decline in the value of their investments.

But there’s no doubt in my mind that you’ve done far better off being retired for the last 10 years, enjoying an employer contribution, a government tax credit and the investment returns you’ve had than if you would just put the money in the bank or under the mattress.

listen to our special podcast where Steve Webb answers readers’ pension questions on the player below, or at Apple Podcasts, Audio boom, Spotify or visit our This is the Money Podcast site.

Ask Steve Webb a retirement question

Former pensions minister Steve Webb is This Is Money’s Agony Uncle.

He’s ready to answer your questions, whether you’re still saving, in the process of quitting work, or juggling your finances in retirement.

Steve left the Department of Work and Pensions following the election in May 2015. He is now a partner at the actuarial and consultancy firm Lane Clark & ​​Peacock.

If you would like to ask Steve a question about pensions, please contact him at pensionquestions@thisismoney.co.uk.

Steve will do his best to respond to your message in an upcoming column, but he will not be able to respond to everyone or correspond privately with readers. Nothing in his response constitutes regulated financial advice. Posted questions are sometimes edited for brevity or other reasons.

Please include a daytime contact number with your message – this will be kept confidential and not used for marketing purposes.

If Steve is unable to answer your question, you can also contact MoneyHelper, a government-backed organization which provides free pensions help to the public. It can be found here and the number is 0800 011 3797.

Stevee receives many questions about state pension forecasts and COPE – the outsourced pension equivalent. If you write to Steve on this topic, he will answer a typical reader question here. It contains links to several of Steve’s previous columns on state pension forecasting and outsourcing, which may be helpful.

Some links in this article may be affiliate links. If you click on them, we may earn a small commission. It helps us fund This Is Money and keep them free to use. We do not write articles to promote products. We do not allow a commercial relationship to affect our editorial independence.

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