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.

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.

Recommended

The MoneyWeek Podcast: How the Law Debenture Corporation's unusual structure gives it an edge
Investment trusts

The MoneyWeek Podcast: How the Law Debenture Corporation's unusual structure gives it an edge

Merryn talks to Dennis Jackson and James Henderson of the Law Debenture Corporation about what makes the trust unique, the regulatory tailwinds it can…
27 Oct 2020
Why house deposits and pensions don’t mix
Pensions

Why house deposits and pensions don’t mix

First-time buyers should not be able to raid their pension savings to pay for a house deposit.
26 Oct 2020
How excessive fees can fleece pension savers
Pensions

How excessive fees can fleece pension savers

Pension savers could be paying tens of thousands of pounds in unnecessary charges over the course of a lifetime.
26 Oct 2020
Nine of the best new investment trusts and ETFs
Funds

Nine of the best new investment trusts and ETFs

A lot of appealing investment trusts trusts and exchange-traded funds have emerged now that the market has calmed down. David Stevenson picks nine of …
26 Oct 2020

Most Popular

The Bank of England should create a "Bitpound" digital currency and take the world by storm
Bitcoin

The Bank of England should create a "Bitpound" digital currency and take the world by storm

The Bank of England could win the race to create a respectable digital currency if it moves quickly, says Matthew Lynn.
18 Oct 2020
Don’t miss this bus: take a bet on National Express
Trading

Don’t miss this bus: take a bet on National Express

Bus operator National Express is cheap, robust and ideally placed to ride the recovery. Matthew Partridge explains how traders can play it.
19 Oct 2020
Three stocks that can cope with Covid-19
Share tips

Three stocks that can cope with Covid-19

Professional investor Zehrid Osmani of the Martin Currie Global Portfolio Trust, picks three stocks that he thinks should be able to weather the coron…
12 Oct 2020