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

I’ve been enrolled at my workplace pension scheme for the last 10 years only to discover that from April this year I’ve been losing £1,000 every month although I didn’t choose to invest.

They’re doing it without my knowledge or consent. How can I get help.

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

Steve Webb replies: I entirely understand that recent market falls have been very upsetting for many people, and that this is particularly difficult for those who are close to (or in) retirement.

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

So let me run through what is going on ‘under the bonnet’ when you are enrolled into a workplace pension.

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

Although the employer was required by law to choose a pension, enrol you into it and pay contributions into 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 every case this is a great deal.

Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below

If we focus just on the legal minimum level of contributions, you have to pay in 5 per cent of your wages and your employer has to pay in 3 per cent.

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

Suppose, for example, that these minimum contribution figures amount to £50 from you each month and £30 from your employer.

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

This is such a good deal that unless the value of the fund fell by 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 that you and your employer pay in is invested. It doesn’t simply sit in a cash account like a bank account earning a derisory rate of interest.

Instead, it is used to buy a mix of assets including shares (both UK and around the world), bonds (loans to 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 pension fund.

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

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 your pension pot just sitting there for decades not even keeping pace with inflation.

The downside of investing for growth is that an element of investment risk is taken. You will probably be familiar with the adverts which say that investments ‘can go up as well as down’. And this has been a bad year.

But over the decade in which you have been saving into a pension I have absolutely no doubt that there is significantly more in your pension pot today than you have paid in, even after recent market falls.

If you feel very strongly about not wanting to be exposed to investment risk, you do have the option of moving your money with your pension provider out of the ‘default fund’ (which is the place your money goes if you don’t make any active choices) and into another fund.

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

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

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

But there is no doubt in my mind that you have done far better by being in a pension for the last 10 years, benefiting from an employer contribution, a tax break from the government and the investment returns you have enjoyed than if you’d simply stuck 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, Audioboom, Spotify or visit our This is Money Podcast page.

This post first appeared on Dailymail.co.uk