Savers prioritise returns over local impact of pension investments

The majority (82 per cent) of UK adults think that return on investment should be prioritised when considering how their pension is managed, rather than the local impact, according to research from the Centre for Progressive Policy (CPP).

The survey also found that a further 54 per cent of savers would prioritise the fees they are charged, while just 17 per cent would prioritise investing in companies that would benefit their local area.

In contrast, around 52 per cent of savers surveyed said they would be more likely to prioritise flexibility in the plan on offer, while 31 per cent would prioritise investing in companies that are aligned with their social, moral or ethical values.

In addition to this, the survey found that only 14 per cent of all defined contribution (DC) n pension holders have changed or tried to change how their savings are allocated.

Of those who have, more than half (51 per cent) moved their savings due to the level of risk they were exposed to, whereas only 17 per cent moved their money because it was not being invested ethically

The findings have prompted concerns that the government’s previous call for institutional investors, such as pension schemes, to trigger an ‘investment big bang’ to aid the UK’s economic recovery could be at odds with savers’ desires.

The government has already confirmed that it will proceed with changes to the regulatory charge cap in an effort to help pension schemes invest in more illiquid assets, such as local infrastructure, with further changes to employer-related investments also confirmed this month.

However, CPP explained that increasing the charge cap could leave low- and middle-income savers to face higher costs on their pension investments.

Indeed, analysis from the group showed that a UK worker paying fees at the current cap of 0.75 per cent will see the size of their total savings pot cut by around 16.5 per cent as a result of fees over a 40-year period.

Furthermore, if the cap were to increase further to 1.2 per cent of assets, this would reduce pension pots by around a quarter.

Despite these concerns, CPP acknowledged that there is “undoubtedly great potential” for investment in local infrastructure to bring benefits to local economies.

In light of this, it argued that the potential benefits of greater infrastructure investment should be "carefully balanced" with the need to protect the retirement savings of millions of pension-holders by keeping charges and fees low over the long term.

CPP director of policy & research, Ben Franklin, commented: “A plan for economic recovery and growth should be the heart of our next Prime Minister's agenda.

"While pensions savings can play a role in delivering this, it must not be done at the at the expense of retirement incomes and by raising fees against savers’ wishes.

“The extraordinary policy success of auto-enrolment means that almost 20 million people are now participating in a workplace pension, including many middle and low earners.

"It’s clear from our research that people prioritise two things: return on investment, and affordable fees. Government’s plans for unlocking capital for new infrastructure must be guided by these two principles.”

Commenting in response to the concerns, a DWP spokesperson stated: “Opening up greater illiquid asset options to defined contribution pension schemes will help enable them to build better diversified portfolios more easily, while also having the potential to improve saver outcomes.

“Our proposal to allow performance-based fees to be excluded from the charge cap would be optional should DC schemes decide this works in the financial interests of their members.

“We have taken on board feedback we received from the consultation and are continuing to engage with industry and other stakeholders into the design of this policy.”

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