Personal pension pots have failed to perform properly because savers don’t know about high management fees, according to a report from retirement advice specialists Profile Financial.
Two thirds of pension holders don’t know how much they are paying in management fees and 41 per cent of people have never spoken to their pensions manager or an adviser.
Simon Vella, pensions expert at Profile Financial said, “While everyone knows the value of their property, and how much the mortgage costs each month, very few people know the total in their pension and how much they pay in fees each year.”
Because of this blind-spot over £180bn of personal pensions are stuck in over-charged pots and pay over £2bn in unnecessary fees each year, the Profile Financial report revealed.
The annual average fee people pay on their pensions is 1.47 per cent however some providers charge as little as 0.34 per cent. A 35-year-old with the national average £22,000 pension pot, currently paying the average 1.47 per cent fee, could be saving over £9,000 if they switch to the lower cost providers.
Some people are actually at risk of seeing their pension pots lose money due to management charges that are so high they decrease the value of the assets they hold, the Profile Financial report found.
So called, ‘Zombie Pensions’ with fees at 3 per cent (higher than the standard annual growth of 2.5 per cent) leave the retiree with less money than they started with.
This report has followed plans for a pensions dashboard that will allow savers to see all of their retirement money in one place.
Regulators have worked to try a limit some management fees and in May 2016 the FCA, working with the Department of Work and Pensions, introduced a cap on personal pension exit fees of 1 per cent.
Mr Vella added, “The fees are a scandal, but the issue actually goes way beyond this. Having lazy pension pots can also mean your savings are not invested properly to match your expectations.”
Not getting proper returns from personal pensions may put people at a loss when they want to take advantage of new pensions freedoms on retirement, Mr Vella commented.
Nearly three quarters of pension holders have failed to check if their holdings are performing properly, with over a third of people not knowing the investment performance of their pension, Profile Financial’s report added.
The research also found that 38 per cent of people don’t know how risky their pension investments are.
Lack of knowledge about personal pension fund strategies has meant that savers are at risk of missing out on the rewards of good pension investment.
Billy Burrows, director at Retirement Intelligence, said: “As people live longer, it’s more important than ever that those approaching retirement see their pension pots continue to grow.”
The dashboard might go some way in helping people keep track of their pensions savings and build plans for the future.
