Financial experts are calling on retirement savers to ditch their default pension funds offered by employers and providers before they give up work.
Most savers with a ‘one size suits all’ pension fund with investment choices made for them by their employer or pension provider.
But ditching these funds in favour of picking your own funds and shares can significantly improve the size of your pension pot, says analysis by investment platform Hargreaves Lansdown.
The firm says returns from the average default fund are ‘trounced’ by those from the 10 most popular managed funds selected by workers who manage their own pensions.
And going solo is the key to maximising your pension returns rather than playing safe with dud funds.
The firm says the 10 favourite funds are:
- AXA Framlington Managed Balance
- Baillie Gifford Managed
- Fundsmith Equity
- Jupiter Global Managed Fund
- LF Woodford Equity Income
- Lindsell Train Global Equity
- Marlborough UK Micro-Cap Growth
- Newton Real Return
- Standard Life Inv Global Smaller Companies
- Stewart Investors Asia Pacific Leaders
Savers with defined contribution pensions already bear the investment risk because they must manage their own funds, but workers often had the job to their employers who opt for safety rather than growth.
Hargreaves Lansdown worked out that boosting investment returns by 1% a year can increase the value of a pension by nearly £60,000 by retirement.
“Someone earning £28,000 who starts saving 8% of their pay into a pension at age 22 and retires at 68 with 5% investment returns after charges could expect a pension of £190,961. If their investments grew at 6% every year the pot could be £250,036,” said a spokesman.
It’s your money
But the firm’s study found only 22% of savers take a chance at picking their own investments.
Older investors – in their 40s and above tend to the most proactive, while around half of savers with a fund worth £25,000 or more select their own stocks, compared with just 5% with funds worth £5,000 or less.
Men (26%) are more likely to bust out of a default fund, compared to 16% of women.
“If you make no choices at all, your pension savings will go into a default fund. These are designed to be conservative one-size-fits-all solutions, but most workplace pensions will offer some different choices,” said a spokesman for the firm.
“People tend to choose their investments after their pot has built up a little or they have been a scheme member for a number of years, but you don’t have to wait; after all it’s your money and the choices you make can massively boost your retirement prospects.”