II calls for transparency as study finds pension ‘blind spots’

Pension ‘blind spots’ on investment choices and fees could cost Brits £120,000 in retirement income over a working life, according to research from Interactive Investor (II).

The investment platform’s Show Me My Money 2022 report found that 77 per cent of people did not know how much they pay in fees for their pensions, despite possible average savings of £259 a year.

This figure increased to 90 per cent amongst those aged over 55.

A third of respondents said their pensions were invested in low-risk funds, while another third did not know the risk level of their pensions.

According to II, the price of being in a lower-risk fund, rather than a high-growth fund, and paying higher fees could be around £120,000 over an average worker’s career.

In light of the findings, II called for “meaningful transparency” from providers on costs and holdings in pensions.

Its research also revealed that almost half (48 per cent) of people did not know how much was in their pension pots, while 26 per cent said they did not have a pension.

The average pension pot size across all ages was found to be £86,232, while the average pot size for over-55s was £132,464.

Average contributions were £240.50 a month, with men contributing an average of £309 and women an average of £172.

Middle age was found to be the peak contribution period, with 35 to 54 year olds contributing an average of £261 a month, while younger workers contributed an average of £245.40 and over-55s contributed an average of £218 a month.

Nearly half (48 per cent) of respondents did now know how much they contribute.

“Potential savings of over £100,000 over a working life, just by dialling up your risk appetite and finding a better value provider, might seem like the stuff of dreams. It’s one of the pension industry’s best kept secrets,” said II CEO, Richard Wilson.

“Two years ago, we called on life company pensions to up their game on transparency. But old habits die hard from an industry that has benefitted from pension blind spots for many years.”

II head of pensions and savings and author of the report, Becky O’Connor, added: “One reason people are not aware of the potential savings to be made from finding out what these hidden but material fees are, is that unlike with TV subscriptions, you don’t get a pension fee coming out of your bank account every month, it is simply taken off the pension balance – so you might never even know you are paying it.

“It seems the engagement gap with our pension pots is being driven by a lack of visibility and lack of agency. Unfortunately, this is money that people don’t always even know they are paying, which they might be paying unnecessarily and could really make a difference to their lives.

“Our industry needs to deepen people’s understanding of their pensions which will help prompt confident actions – and for many of us, this might mean switching former workplace pensions.

“The report addresses all of the key aspects of pension saving – contribution levels, risk levels, what is actually in someone’s pension (and finding this out in the first place), and what fees people are paying.

“We can see many people in the UK are still very much in the dark on all of these. But we are talking about people’s life savings. It is simply not enough to assume the understanding is there, when this research demonstrates that it is nowhere near.

“What remains a key concern is the lack of awareness when it comes to pensions fees, which is costing people a huge amount of money at a time when finances are increasingly being squeezed. This is a crucial area we investigate in more depth within the report.

“We also wanted to go a step further and ask whether people believe their pension fee is relatively good value for money or not, and a staggering 60 per cent did not know – again, pointing to the sheer lack of meaningful context which would allow for comparison.

“Interestingly, the older age group was far more likely to say they didn’t know if their pension was good value or not – 73 per cent - almost three-quarters, have no idea. This is very troubling because it means older workers could be more vulnerable to being ripped off on fees.

“The one glimmer of hope from the report is that younger people demonstrate greater levels of awareness and engagement – possibly a sign that pensions are taken seriously by this economically constrained, but at least auto-enrolled, generation.”

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