HOW YOU COULD SHAVE 17 YEARS OFF YOUR RETIREMENT AGE BY MOVING YOUR PENSION POT TO A FUND WITH LOWER FEES?
Yes that right – 17yrs
A 55-year old has an average pot of £42,621 and is paying an 1.85% fee – They would have to save until they are 80 to boost that to £50,000
But switching to lower charges of 0.34% means it would only take until they reach age 63, recent analysis found.
It sounds staggering doesnt it but this is what could be happening to you and your money!!
We found this article which explains it in more detail which we wish to share with you
Pension experts explain below what is the best thing to do if your paying high fees.
By Tanya Jefferies for Thisismoney.co.uk
26 September 2016
Millions of workers could have to delay the age when they retire by several years because they are paying steep fees on their pension fund, exclusive new research suggests.
Cutting back fees by just 1.5 percentage points can mean the difference between being able to retire at 63 or 80, according to the new data.
However many middle-aged and older workers do not even realise they are paying fees that sap their savings, which can prolong the amount of time they have to carry on working.
FIND THE FULL FIGURES FOR 35, 45 AND 55-YEAR OLD PENSION SAVERS BELOW
Generation gap: Older workers tend to pay higher pension fees than younger staff, because the Government put a 0.75% cap on default fund charges under its auto-enrolment initiative.
A 55-year old worker has an average pension pot of £42,621 and is paying an average fee of 1.85 per cent, according to customer data analysed by advice firm Profile Financial.
It has worked out they would have to keep slogging until they are 80 to boost that to £50,000, assuming investment performance of 2.5 per cent after fees – but only until the age of 63 if they switched to a newer fund levying an average of 0.34 per cent on pension savings.
HOW THIS IS MONEY CAN HELP
Those who already have low fees will not be able to make such a great saving, and others may feel funds with higher fees still offer good value.
The figures highlight how big an impact fees have on your pension pot over the years, and why it is crucial to find out what you are paying for your old and new funds as well as their investment performance.
Rip-off pension fund charges have been slashed since the Government put a 0.75 per cent cap on the amount levied on default pension funds as part of its auto-enrolment initiative, as this has helped knock them down on other schemes too.
Charges on older pots could amount to 3 per cent-plus, whereas you are likely to be paying just 0.3-0.4 per cent now if your default work fund is a tracker, which clones the performance of stock markets rather than tries to beat them.
Younger savers and people who switch jobs and join a new pension scheme are generally put straight into funds with lower fees, but many older savers are still stuck paying higher charges on pots they haven’t transferred or merged with newer ones.
Profile Financial’s analysis of fees paid by its customers found those in new-style pension funds were paying 0.34 per cent, while 35-year-old and 45-year-old savers were paying 1.47 per cent on average and 55-year-olds were paying 1.85 per cent on average.
The dangers of leaving older pots untouched was recently laid bare by the shocking experience of 49-year-old saver Paul Walton, from Rotherham in South Yorkshire.
He discovered a £1,300 pension pot from a job he held in the late 1990s had been eaten up entirely by charges – and he owed the provider £37.32 for maintaining the fund.
What toll do fees take on your pension pot and how long you have to save for?
Profile Financial analysed pension fund and fee data from a sample of some 10,000 customers. It assumed investment performance of 2.5 per cent after fees.
35 year olds
* The average 35 year old has around £21,996 in their pension pot.
* The average fee they pay is 1.47 per cent.
* Based on investment performance after fees, this person would manage to save a pension pot of £40,000 by the age of 90.
* A 35 year old who switched their savings to a new fund levying 0.34 per cent would save a pot worth £50,000 by the age of 74.
45 year olds
• The average 45 year old has around £32,768 in their pension pot.
• The average fee they pay is 1.47 per cent.
• Based on investment performance after fees, if this person wanted to retire with £50,000 in their pot, they would have to work until they are 87.
• A 45 year old who switched their savings to a new fund levying 0.34 per cent would save a pot worth £50,000 by the age of 65.
55 year olds
• The average 55-year-old has around £42,621 in their pension pot.
• The average fee they pay is 1.85 per cent.
• Based on investment performance after fees, this person would only manage to save a pension pot of £50,000 by the age of 80.
• Many 55 year olds pay even more in fees – around 2 per cent. At this level, the person would have to wait until the age of 88 for their fund to hit £50,000.
• A 55 year old who switched their savings to a new fund levying 0.34 per cent would save a pot worth £50,000 by the age of 63.
FIND OUT WHAT TO DO IF YOU ARE PAYING HIGH FEES BELOW
You should aim to get your pot into a place where the fees are as low as possible, so you keep as much of your savings when you retire’
What do pension experts say about fees?
Independent pensions expert Billy Burrows, who formerly worked for Profile Financial, said: ‘Although pensions are confusing, the most basic rule is that the younger you start saving, the more you’ll have when you retire.
‘Most people under the age of 30 now will be on schemes that charge the lower end of the spectrum in terms of fees, around 0.34 per cent per year. So young people can save without their savings being swallowed up by fees.
‘The average middle-aged saver today is signed up to old-style funds charging 1.47 per cent or more per year, which may not sound like much but it’s a fee burden far higher than what is available if you shop around.
‘Lots of people will have signed-up to such a plan when they started working, and as time has gone on they’ve not realised how much money they are losing every year.
‘Over time the returns pensions companies have been delivering to savers have fallen dramatically, yet millions of people have seen their fees remain exactly the same, which is scandalous. We need to see a change in the way the industry works.’
Burrows said savers seeking practical help with their pension should talk to a financial adviser.
‘There is no shame in admitting that pensions can be confusing,’ he said. ‘Very few people know the ins and outs of how their pension is invested and the implications that fees will have on their pot. So speak to someone who knows that they’re talking about.’
‘In terms of what to look out for, the big things are the way in which your savings are invested, the options your pension allows you when you retire, and the fees.
‘You can be saving into a pension that is performing well but the fees are still swallowing up a large percentage of those gains. You should aim to get your pot into a place where the fees are as low as possible, so you keep as much of your savings when you retire.’
Ian Millward: ‘Charges really matter but the complicating factor is that cheap does not automatically mean good’
Ian Millward, pensions specialist at Candid Financial Advice, said: ‘Most people still find it extremely hard to find out exactly what they do pay. We do this for a living and even we sometimes find it tough to work through the “smoke and mirrors” charging structures of older contracts.
‘And because the whole issue of charges is so complex and murky, even when they do know what the charges are, it is hard for them to make an assessment of whether it is decent value.
‘The further in time you go back the worse it is likely to be. For example, contracts sold in the ’70s and ’80s often had different classes of units where pretty much all the first couple of years’ premiums was syphoned off to pay commission. This was usually coupled with excessive annual charges in the early years.
‘The demise of commission has improved things but people shouldn’t be fooled into thinking that fees are now automatically cheaper.’
In terms of what you can do about higher fees, Millward said: ‘The sting in the tail is that some of these older contracts impose a significant transfer penalty if you want to move. Effectively investors are trapped.
‘Our view is that historic transfer penalties should be abolished and that no respectable company should treat its customers in this manner.’
He went on: ‘Charges really matter but the complicating factor is that cheap does not automatically mean good. My guess is that the low cost pension (0.34 per cent per annum) referred to in the research is probably a portfolio of trackers.
‘That is probably a very good starting point for investors, particularly if the size of their pension pot means it is not going to be cost effective for them to enlist the services of a financial adviser.
However, there are active funds that outperform and can add a lot of value to a portfolio so the real argument is about value for money and not being overcharged for second rate products.’