Sticking with your pension scheme's default funds doesn’t pay

Savers who invest their pension contributions in the default funds offered by providers without checking their performance are jeopardising their financial futures.

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.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

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.

Advertisement

Recommended

Visit/513684/companies-cut-back-on-their-pensions-bills
Personal finance

Companies cut back on their pensions bills

Britvic is the latest firm hoping a cheaper inflation index will cut pension costs. David Prosser reports.
28 Aug 2019
Visit/509683/good-news-for-savers
Pensions

Good news for pensions savers from HMRC

HMRC has withdrawn its appeal over breaches of the pensions lifetime allowance.
28 Jun 2019
Visit/personal-finance/pensions/601009/tinkering-with-the-pensions-tapering-system
Pensions

Tinkering with the pensions tapering system

The problems caused by the annual pension contribution allowance have been partially addressed, says David Prosser.
24 Mar 2020
Visit/node/601003
Pensions

Bad news on pensions buried in the Budget

Changing the way pensions are increased in line with inflation could cost the average pension scheme member as much as £12,000.
18 Mar 2020

Most Popular

Visit/investments/property/601081/three-things-matter-for-the-uk-housing-market-now-and
Property

Three things matter for the UK housing market now – and “location” isn’t one of them

The UK housing market is frozen. And when it does eventually thaw out, the traditional factors that drive prices will no longer apply. The day of reck…
1 Apr 2020
Visit/investments/property/601065/what-does-the-coronavirus-crisis-mean-for-uk-house-prices
Property

What does the coronavirus crisis mean for UK house prices?

With the whole country in lockdown, the UK property market is closed for business. John Stepek looks at what that means for UK house prices, housebuil…
27 Mar 2020
Visit/investments/commodities/energy/oil/601107/oil-shoots-higher-have-we-seen-the-bottom-for-the-big-oil
Oil

Oil shoots higher – have we seen the bottom for the big oil companies?

Just a few days ago everyone was worried about negative oil prices. Now, the market has turned upwards. John Stepek explains what’s behind the rise an…
3 Apr 2020
Visit/economy/uk-economy/601079/how-the-coronavirus-pandemic-is-killing-cash
UK Economy

How the coronavirus pandemic is killing cash

Covid-19 is making a huge difference to the way we live, work and do business. One of its less obvious effects, says Merryn Somerset Webb, is to accel…
31 Mar 2020