Lower investment fees could boost retirement savings by £59,000, new analysis from Vanguard Asset Management has found.
In light of this year’s Pension Attention campaign, Vanguard is encouraging pension savers to pay attention to the fees they are paying.
Its analysis shows that reducing annual pension fees from 1% to 0.5% could add at least £59,000 to a saver’s retirement pot over the course of their career. For example, someone earning the UK average salary of £37,500 and contributing £250 per month into their pension from age 25 to 66 could accumulate £465,000 by retirement, assuming a 6% annual return and 0.5% fee.
However, with a 1% fee, this would shrink to £406,000, while a 1.5% fee would see the pension reduced to £355,000.
James Norton, head of retirement & investments at Vanguard Europe, said: “There is a growing concern that many people may not be on track for the retirement they hope for.
“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.”
Almost six in 10 (57%) people don’t have a clear understanding of the fees they pay on their pension, while as many as two in five (40%) non-retired UK adults also hold two or more pension pots. Vanguard says savers should track down all their pensions, check the charges and consider combining them into a new plan.
Norton added: “Those high fees are a hurdle that an investment manager needs to overcome just for you to break even. Our analysis shows that if you keep your pension pot with a low-cost provider, in the long term you could keep significantly more of your returns and significantly improve your retirement.”
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