There are approximately five million deferred members of defined benefit funds – people with money in a former employer’s scheme – and Royal London says that many of them have no idea what their pension would be worth as a lump sum.
It attributes this to a lack of communication from their old scheme provider.
The insurer found that when people transfer their retirement pot, they are typically offered £158,000 to £190,000 or 25-30 times the annual value of their pension as a lump sum.
This means that the total value of the pension promises due to deferred scheme members could be worth up to £800billion.
Royal London director of policy Steve Webb said: “Millions of people are sitting on pension rights built up from a previous employer. What they may not realise is that these pensions are very valuable, often worth a six figure sum. It is important that scheme members find out what their pensions are worth and take impartial advice as to whether it would be best to leave their pot where it is or transfer it out in exchange for a lump sum. They need to realise that they are giving up a valuable guaranteed payment and should assess the pros and cons carefully.”
Growing numbers are taking advantage of pension freedoms to unlock cash from their schemes.
Former pensions minister Baroness Altmann said that for them to be truly successful, the Government needs to make it mandatory for people to consult with Pension Wise, the official financial advice service.
She said that while pension freedoms are right, “the missing piece is making sure people get financial advice before they make a decision that is irreversible”.
Elsewhere, City observers believe that star fund manger Neil Woodford’s torrid run of setbacks, the latest of which is his disastrous bet on sub-prime lender Provident Financial, is down to him stretching himself too thinly and investing in areas that he is unfamiliar with.
Jason Hollands, Tilney Bestinvest managing director, explained: “One of the challenges for Woodford is that he is not only running quite sizeable amounts of capital, multiple products and his own business, he is also panning a very wide spectrum of firms now from large internationals to small, unquoted businesses. Investing in the latter can be incredibly time consuming.
“Advisers will naturally be wondering whether these issues might in part reflect overstretch, lack of resource or the absence of sufficient internal challenge that you might expect in a bigger organisation.”
Woodford, who is responsible for the savings of tens of thousands of Britons, is the worst performing fund manager in his peer group, the only one to make a loss so far this year, according to data provider CityWire.