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

I’ve been enrolled in my work pension scheme for the past 10 years but found myself losing £1,000 every month from April this year, even though I chose not to invest.

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

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

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

So let me run through what’s going on ‘under the hood’ when you’re registered for an occupational pension.

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

Although the employer was required by law to choose a pension, enroll you in it and pay contributions for 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 this is a lot.

If we only look at the statutory minimum contribution level, then you must pay 5 percent of your wages and your employer 3 percent.

(The legal minimum actually refers to some ‘eligible income’ between £6,240 and £50,270 rather than your total salary, but to keep it simple I will only talk about your ‘wages’).

Suppose, for example, that these minimum premium amounts are €50 per month from you and €30 from your employer.

In total you will receive € 80 in pension. You also get a £10 tax credit on your contributions, meaning (in most cases) this £80 only cost you £40 of your take home.

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

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

This is because the money you and your employer pay is invested. It’s not just sitting in a cash account like a bank account that pays ridiculous interest.

Instead, it is used to buy a mix of assets, including stocks (both in the UK and around the world), bonds (loans to the government or to companies) and other assets such as real estate.

In most years, these assets will appreciate in value, expanding your retirement fund.

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

For example, if you make contributions 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 sit there for decades and not even keep up with inflation.

The disadvantage of investing for growth is that part of the investment risk is taken. You are probably familiar with the advertisements that say that investments ‘can go up as well as down’. And this has been a bad year.

But in the decade you’ve saved for retirement, I have absolutely no doubt that there’s significantly more in your retirement pot than you’ve paid, even after recent market declines.

If you are strongly convinced that you do not want to be exposed to investment risk, you do have the option of withdrawing your money from your pension provider from the default fund (where your money goes if you do not have active choices) and into another fund.

The pension provider may offer a fund with a lower risk that you feel more comfortable with. But you should be aware that in more normal times you are also likely to get lower returns if you do this.

To go back to where I started, I don’t want to lessen the suffering that market dips have caused you and others.

And all pension providers will look at how their funds have performed this year and whether they have struck the right balance between investing for growth and the risk of periodic depreciation of their investments.

But I have no doubt that you’ve done a lot better by retiring in the last 10 years, taking advantage of an employer’s contribution, a government tax break, and the investment returns you’ve enjoyed than if you just put the money in the bank. sofa or under the mattress.

Listen to our special podcast where Steve Webb answers readers’ retirement questions on the player below, or on Apple Podcasts, audio tree, Spotify or visit our This is the Money Podcast Page.