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Simple way to help boost your retirement income highlighted by insurer

By Vicky Shaw, PA Personal Finance Correspondent

Workplace pension savers could risk missing out on thousands of pounds by not updating their provider about the age when they want to retire, an insurer has warned.

Increases in the state pension age and the removal of the default retirement age mean many people will end up working later into life – whether it is because they want to or they cannot afford not to.

Aviva said there can be serious consequences for retirement incomes if someone is planning to retire later in life but fails to notify their pension provider.

Its analysis suggests that an average earner in an automatic enrolment scheme could miss out on more than £4,000 in their pension pot by sticking with a default retirement age of 65, when they actually intend to retire at 68.

Someone whose retirement age is still set at 60 could miss out on nearly £10,000, according to Aviva’s calculations.

Women could be particularly affected, due to the way default retirement ages were set in the past.

Traditionally, women received their state pension aged 60 and men at 65. Now, people aged under 41 will not receive it until they are 68.

Aviva explained the potential loss in retirement income could happen because of “de-risking” in savers’ default investments.

As savers get closer to their retirement date, investments are switched from higher risk funds which can produce potentially higher returns, to lower risk funds with lower potential returns.

This is to protect the savings of those who are on the brink of retirement from sudden market moves.

But if a provider holds a retirement age that is younger than when the saver actually wants to retire, they could move investments to less risky assets too early.

This means people lose out on investment growth just at the point when their pension pot is at its largest.

On the other hand, if the provider holds a retirement age that is too old, they could keep the money invested in riskier investments for too long.

If investments lose value too close to the planned retirement age there may not be time for them to recover their value – meaning less money in retirement, or perhaps a last-minute delay to retirement plans.

Employers typically set the default retirement age for all their employees when they first set up their workplace pension.

Members can then contact their provider and set their own retirement date.

Colin Williams, managing director of workplace savings and retirement at Aviva, said: “De-risking profiles have been carefully designed to balance risk and return in the approach to retirement.

“But this balance is thrown out of kilter if someone wants to retire at a different age than was originally assumed when they started their pension.

“Changing your retirement age is a really simple way to maximise the potential returns of your pension investments. Plus, it’s an opportunity to check how much is in your fund and if you’re on course to achieve the type of retirement you want.

“Many providers allow you to check and change your retirement age online.

“I’d encourage people to go online and check the retirement age their provider holds, and if doesn’t match their current plans, change it.”