Members of workplace pension schemes have boosted returns by making active choices about their investments.
Analysis by Hargreaves Lansdown found that, on average, the most popular pension funds chosen by members have beaten the average return of default funds by 4.08 per cent over the past 5 years.
The market volatility of the past 12 months has seen default funds fall 5.63 per cent on average, compared with a 2.69 per cent fall in the most popular pension funds chosen by scheme members.
Nathan Long, senior analyst at Hargreaves Lansdown, said: "A pension is simply a long-term investment plan and you need the best investments to maximise your returns, for most workplace pension savers better investment options are available. The catch is you have to be comfortable making those choices, but it is easier than you think.
"There are plenty of lists and information available on top investment funds, if you look online. A few minutes research can get you started. If you need more help, then paying for financial advice can be worthwhile."
The analysis looked at the top 10 funds chosen by more than 19,000 members of the HL Workplace Pension who are making their own investment decisions.
The average returns for five years were taken from 11 of the 12 default funds analysed and nine of the top 10 funds chosen by active investors. Funds were excluded where they don’t have a full five-year track record.
The returns data, which modelled the impact on a pension pot at age 68 for someone starting saving at 22 and earning £30,000, found that increasing returns by 1 per cent, but keeping contributions the same increased the pot at 68 by more than £55,000.
In comparison, if the contributions are increased by 1 per cent every year, but the investment returns remain the same, the pot would increase by just £23,000.
The modelling assumed a baseline position paying in 8 per cent and receiving an annual return of 5 per cent, whilst paying a charge of 0.75 per cent. The contributions increase each year by 2 per cent to reflect pay rises and assumed inflation of 2 per cent.
Hargreaves Lansdown’s data comes just a day after senior members of DC pension providers told the Work and Pensions committee they did not expect the millions of people who have been auto-enrolled into schemes over the past six years to feel an attachment to their savings yet.
Speaking at the hearing yesterday (January 23, 2018), Zoe Alexander, director of strategy for Nest, said rather than looking at a range of investment options, DC members were just becoming comfortable with the level of contributions they were making.
Mr Long, said: "Default funds are the least worst option for the most people in the scheme but are rarely the best choice for any one individual scheme member."