Simply switching to a cheaper pension provider could leave workers £59,000 better off in retirement, according to new analysis by Vanguard Asset Management.
The investment firm found that reducing annual pension fees from one per cent to 0.5 per cent makes a significant difference to the size of a retirement pot.
The findings form part of this year's Pension Attention campaign, which encourages people to check what charges they are paying.
Research suggests almost six in ten people do not have a clear idea of their pension fees.
Vanguard illustrated the effect using the example of someone on the average UK salary of £37,500.
If they contribute £250 a month from age 25 until retirement at 66, and achieve 6 per cent annual returns, their pot would reach £465,000 with a 0.5 per cent fee.
At one per cent, the figure falls to £406,000 – a difference of £59,000 for the same contributions.
With a 1.5 per cent fee, the final pot would shrink to £355,000.
Switching to a cheaper pension provider could leave workers £59,000 better off.
|getty
James Norton, head of retirement and investments at Vanguard Europe, said: "This is not a new issue, but this year's Pension Attention campaign is another timely reminder for individuals to assess whether their current saving habits are setting them up for long-term financial security."
He added that people should focus on what they can control, including the costs of their investments.
Norton explained: "The higher the fees you pay the less returns you get to keep for yourself. Putting it simply, fees erode your returns."
He said that high fees act as a hurdle for fund managers and reduce long-term gains.
High fees act as a hurdle for fund managers and reduce long-term gains
| GETTY"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," he stated.
Vanguard advises savers to take three steps to reduce fees.
First:
- Check current charges by reviewing pension statements and comparing them with other providers.
Second:
- Ensure pensions match financial goals, life stage and risk appetite.
Third:
- Consider consolidating old pension pots.
Research shows 40 per cent of working adults have two or more pensions, with consolidation offering the chance to cut fees and reduce paperwork.
The Pension Attention campaign is backed by a coalition of providers and industry groups.
It aims to raise awareness of pension charges and encourage savers to check whether they are getting value.
Organisers say too many people leave old schemes untouched, only to find years later that high fees have reduced their returns.
Vanguard advises savers to take three steps to reduce fees.
| PEXELSMillions remain in plans charging over 1 per cent, often linked to jobs from earlier in their careers.
Vanguard argues that clearer reporting would make it easier for consumers to see how charges affect long-term outcomes.
Campaigners also say consolidating multiple pots can save money and reduce the risk of losing track of entitlements.
Norton said: "Many people assume their pension is automatically working in their best interests. In reality, reviewing fees and investment options is crucial to maximising long-term returns."