Paying lower pension investment fees could increase retirement savings by nearly £50,000, new research from Vanguard Asset Management has found.
Vanguard’s analysis shows that reducing annual pension fees from 1% to 0.5% could add at least £47,000 to a saver’s retirement pot over the course of their career.
As an example, the firm said someone contributing £250 per month into their pension from age 25 to 66 could accumulate £392,000 by retirement, assuming a 5.5% annual return and a 0.5% fee.
However, with a 1% fee, the pot would shrink to £345,000 and a 1.5% fee would see the pot reduced further to £324,000.
James Norton, head of retirement and investments at Vanguard Europe, said: “There is a growing concern that many people may not be on track for the retirement they hope for. This is not a new issue, but recent campaigns are another timely reminder for individuals to assess whether their current saving habits are setting them up for long-term financial security.
“When trying to tackle this issue individuals should focus on what they can control, one of the most practical being the investment costs they pay. When buying a car, it’s common for a more expensive vehicle to perform better than a cheaper one. So, you may think that higher fees should lead to better investment outcomes. But the higher the fees you pay the less returns you get to keep for yourself. Putting it simply, fees erode your returns.”
Norton said high fees are a hurdle that an investment manager needs to overcome to break even.
As a result, Vanguard is urging pension savers to check their current pension, after research from Boring Money revealed that 57% of people don’t have a clear understanding of the fees they pay on their pension.
Vanguard said people should also make sure their pension is right for them and consider combining their old pension pots. Research has shown that 40% of non-retired UK adults have two or more pensions.
“Make sure to track down all of your pension pots, check their charges and consider combining them into a new plan. This could cut down on admin, provide a clearer view of your savings and mean you save on fees if you consolidate to a low-cost provider,” the firm said.
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