Pension contribution levels commonly have the “most significant” impact on retirement outcomes, the Pension Policy Institute (PPI) has said.

Charging structures and levels also have an important role to play in determining retirement outcomes but are “not necessarily” the most important factor.

In its report, Pension charging structures and beyond; an outcomes-focused analysis, the PPI said that charges and contribution levels need to considered alongside other factors, including member communications and experience, investment strategies, the strength of governance, and the impact of having multiple pension pots.

It noted that a low charge does not necessarily guarantee good value, as those with multiple pots are likely to be worse off than those with a single pot, while the charges so not necessarily reflect the costs incurred in running a pension scheme.

The PPI highlighted that there may only be small differences between different charging structure that meet the government’s charge cap and points to the need to develop a common framework to give savers the understanding to assess whether the scheme represents good value for money.

Greater transparency on default strategies would allow for a greater understanding but may not produce the data that members or employers can use effectively, according to the report.

Commenting on the report, Smart Pension director of policy and communications, Darren Philp, said: “As we all know, value for money goes way beyond just charges. Clear and transparent charges are absolutely essential. Without them how can people assess value for money?

“But we need to develop a common framework for assessing, and importantly, comparing value.

"There is inevitably an element of judgement in such assessment, which is where robust governance must come to the fore.”

The PPI also warned against having multiple pension pots, and that the introduction of auto-enrolment could see an uptick in their occurrence, as savers can lose out by paying multiple charges across the accumulation period.

It found that an individual with a single pot are better placed to get good retirement outcomes, but that it depends on the scheme that the individual is first enrolled into.

PPI senior policy researcher, Mark Baker, added: “Charging structures and levels do have an important role to play in determining savers’ retirement outcomes, but they should be understood alongside a number of other factors.

“A charging structure that appears to offer a low charge for savers does not guarantee good value, as other factors, particularly investment performance, increased personal contributions and member engagement will affect outcomes.

“Automatic enrolment has two unique features that can work against savers achieving optimal outcomes.

"The first is that members do not have always influence over the scheme their employer elects to enrol them into, and the second is that they are likely to approach retirement with multiple pension pots accrued across different employers and schemes. Moving between different charging structures during accumulation will have an impact on retirement outcomes.

“There are potential approaches that can assist savers optimise the value of their pensions, such as retaining the same pension throughout their working lives or taking their pot with them when they move between employers.

“However, none of these strategies will guarantee better outcomes alone.”

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