Fund charges hurting pension payoutsHuge gap between best and worst returns

24 January 2012

High fees are resulting in lower pension payouts

High fees charged by pension funds are costing people thousands of pounds of retirement income with a sizeable gulf in the returns offered by different providers.

A survey of pension charges by Money Management found that if you contributed £200 a month for 25 years, paying no commission, you could be £11,096 better off with the best performing fund than the worst performing.

Under those circumstances, investing in internal balanced managed funds, which most pension contributions go into, you would have got £146,863 from Aviva, compared to £135,767 from Axa Elevate, which is 7.5% less.

When commission was deducted, the best return on offer was £143,902, while the worst was £103,617.

Single contributions also suffer

There was also pronounced inconsistency in the performance of single contributions. A commission-free £10,000 invested with Aviva would make £47,133, 12% more than with NFU Mutual, which would make £42,004.

The survey, based on charges on personal pensions as at 1 November 2011, also showed that a one-off investment of £50,000 with the Axa Retirement Wealth Group would produce £248,000, as opposed to £215,945 through its Elevate plan.

With commission deducted, the top return is provided by Aegon at £234,700.

Transparency needed

The National Association of Pension Funds is calling for more transparency around pension fund charges, which are often complicated as well as high, as companies begin to automatically enrol all workers into a workplace pension later this year.

Which? principal policy adviser, Dominic Lindley, said: 'Pension charges are too high, too complex and too difficult to compare. Charges at these levels will have a significant impact on a consumer's aspirations for a comfortable retirement.'

More on this…

Adviser fees – Which? finds huge variations in the amount you'll pay
Guide to personal pensions – all you need to know about saving for retirement
Need pension advice? – call the Which? Money Helpline for free expert guidance