Savers who invest their pension contributions in the "default" funds offered by providers without checking the performance of these vehicles are jeopardising their financial futures, new research warns. The best-performing default fund run by the 20 largest pension providers has returned 11.9% a year over the past three years, compared with 3.4% for the worst performer, says the Tax Incentivised Savings Association (Tisa).
Around 95% of members of defined contribution (DC) employer pension schemes opt for a default fund, rather than taking the time to explore what alternative investment options might be on offer. Many savers with personal pension arrangements do the same.
The disparity of performance threatens to have a huge impact on returns. A saver earning £30,000 a year and investing in a pension fund with an annual growth rate of 3.4% would have a fund worth £153,600 after 50 years. A fund returning 11.9% a year would grow to be worth £2,271,200.
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