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Experts clash over the benefits of pensions education

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Pension experts have clashed over the need for improved financial education as providers focusing on automatic enrolment turn their attention to the design of default investment funds.

Speaking at the launch of the ‘Nest Insight’ report last week, Lane, Clark and Peacock principal Andrew Cheseldine suggested people who stay in a default fund tend to achieve better outcomes than those who make investment choices.

He said: “There is quite a lot of evidence that suggests people who are automatically enrolled and go into defaults get better results in retirement than people who make a choice.

“The main reason people who make their own investment choices do not do as well is they either go into a fund and stay in it for 40 years, which leaves them exposed to certain risks, or they trade regularly and they forget about the frictional results of transactions.”

However Hargreaves Lansdown head of pensions research Tom McPhail said: “While defaults are part of the solution to auto-enrolment, they also sow the seeds of the next problem because it enables people to default all the way through to an inadequate retirement. You get default membership, default contributions, default investment choices and default retirement age, and for most people that will not result in a good outcome.

“We need to build a resilient system. I do not think you can do that by lulling people into a false sense of security that the default will be good enough.”

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