Lower fees could add £59,000 to retirement savings, says Vanguard

They advised checking current pension fees, as 57% of people did not understand what they pay. 
1 min read

Vanguard Asset Management has found that cutting investment fees from 1% to 0.5% could leave savers with an extra £59,000 in their pension pot by retirement. 

This followed analysis carried out for the Pension Attention campaign, revealing that a worker earning the UK average salary of £37,500 and paying in £250 a month from age 25 to 66 could end up with £465,000 at retirement if annual fees were 0.5%. 

With a 1% fee, the total would be £406,000, and with a 1.5% fee it would be £355,000 – the figures assume a 6% yearly return.

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 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.

“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.”

Norton added: “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.”

He said: “Those high fees are a hurdle that an investment manager needs to overcome just for you to breakeven. 

“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. 

“It is your money and you’re taking the investment risk, so make sure you keep as much of your returns as possible.”

Vanguard gave three tips for savers. 

First, the firm advised checking the fees on your current pension, as 57% of people did not understand what they pay. 

Additionally, it said savers should make sure the pension fits your goals and risk level. 

It added that savers should consider combining old pension pots to save on fees, as 40% of non-retired adults have more than one pot.

Marvin Onumonu

Marvin Onumonu is a Reporter for Workplace Journal and The Intermediary

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