Worst workplace pensions can lose savers £370,000
WORKERS are missing out on more than the value of a house through poorly performing workplace pensions, experts have warned.
Those saving for retirement through their employer’s auto-enrolment schemes can see investments vary by nearly £400,000, depending which fund the money is in.
The disparity in the annual performances of the UK’s top ten defined contribution default funds has been highlighted by new research.
Default funds are ones that employers select for savers who do not make active choices themselves.
Their performance ranges from 6.3 per cent to almost double that at 12.5 per cent, according to the research by JLT Employee Benefits.
The difference is so huge that by the age of 55 some savers could be £370,109 worse off than others.
That is far in excess of the £226,185 value of the average UK home stated by the Land Registry last July.
According to The Pensions Regulator, 92 per cent of all defined contribution pension savers are invested in default strategies chosen by employers on their behalf.
People can switch funds but most do not, either trusting the employer has made the best decision for them or because they are not interested or informed enough to choose for themselves.
Experts warned employers have a responsibility to find the best investment strategy for their pension schemes – but many do not want to pay for specialist advice.
Maria Nazarova-Doyle, the head of DC investment consulting at JLT Employee Benefits, said: “Auto-enrolment default funds are not as plain vanilla as one may think.
“The disparity in their strategies and risk-return profiles could lead to a huge shortfall, amounting to the equivalent of a property.”
One calculation shows the difference for a worker in their early 20s earning £22,000 a year making the minimum contribution of two per cent matched by the employer.
If the money was invested in the best-performing fund, they could expect a pension pot at 55 of £525,586.
If the cash was put into the least profitable fund the pot would be just £155,477.
Keith Richards of the Personal Finance Society said: “It’s understandable staff trust their employers but it is always best to get independent financial advice yourself.”
Mark Abley from The Pension Review Service added: “A good independent financial adviser should be able to quickly provide guidance.”
The Department for Work and Pensions said: “We continue to work with The Pensions Regulator to ensure employers are aware of all the options available to them.”