Defined contribution scheme members could save 8 per cent more of their total expected pension pots if scheme charges were to drop by some 30 basis points.

The Pensions Policy Institute (PPI) has estimated that a median earner saving 8 per cent of total earnings from 22 to state pension age could see their pension pot increase by 6 to 8 per cent if a scheme’s charges were to be lowered from 0.72 per cent of AUM to between 0.37 per cent and 0.45 per cent, through scheme growth or consolidation.

The estimation is included in the PPI’s fifth edition of its annual DC compendium, The DC Future Book, which it has published this week in association with Columbia Threadneedle Investments.

As well as a section on the effect of lower charges, chapter four of the book further explores how changes in governance and investment strategy could increase the size of member pots at retirement.

Based on the same assumptions used to calculate the impact of lower charges, the PPI says that a pot could rise by three per cent if it is invested in a diversified growth fund rather than a typical default strategy, and by two per cent if the pot is invested in ESG-compliant assets.

The body also says that an average member could save 2 to 3 per cent more if they invest about a sixth of their total fund into illiquid investments such as infrastructure.

A member could also see their final pension pot rise by 5 per cent if they were to continue to save 8 per cent of earnings for two years after state pension age.

However, putting away more money remains the easiest and safest way to achieve a larger income in retirement, according to the study. Average workers could save 13 per cent more if their lifetime contributions rose from 8 to 9 per cent.

PPI head of policy research, Daniela Silcock, said: “It’s important to recognise the good work that government and industry have already done to ensure that the DC pensions market meets the needs of those saving for retirement, over a relatively short period.

“We are still going through the process of adaptation and the Future Book 2019 identifies the way that policy and debate about governance and investment is currently evolving and estimates how improvements could affect individual DC pot sizes.”

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