The most popular defined contribution investment funds chosen by members who actively invest have beaten default strategy returns by 4.75 per cent over the last five years, it has been found.
The discovery has been made by Hargreaves Lansdown following a comparison between the difference of the average annual returns of the top ten funds picked by DC pension scheme members and the average returns from default funds in the five years running up to June 2018.
Taking the average returns of default funds from nine workplace pension providers, the provider has also found a 4.99 per cent difference in the first year and a 4.92 per cent gap after three years.
Based on analysis of 58,000 workplace pension members, Hargreaves Lansdown has also found that 22 per cent of pension members choose their own investments, with people in their 40s most likely to make a choice. Almost half of people with a pension of more than £25,000 choose their own investments, while only 5 per cent with a pension under £5,000 are active investors. The analysis also revealed that women (16 per cent) are less likely to choose their own investments than men (26 per cent).
The company said that someone earning £28,000 could increase their pension by nearly £60,000 if they boosted their investment returns by just one per cent every year. If they started saving eight per cent of their pay into a pension at age 22 and retired at 68 with five per cent investment returns, they could expect a pension of £190,961. If their investments grew at six per cent every year, the pot could total £250,036.
Hargreaves Lansdown senior pension analyst Nathan Long said: “People tend to choose their investments after their pot has built up a little or they have been a scheme member for a number of years, but you don’t have to wait; after all it’s your money and the choices you make can massively boost your retirement prospects.”