Members lose £500k from worst performing auto-enrol defaults


Staff enrolled in workplace pension schemes could lose £500,000 over their lifetime if their savings are invested in the worst performing default funds.

Research by JLT Employee Benefits, published today, shows the difference between the investment returns of the ten largest group personal pension providers.

Auto-enrolment default fund performance ranges from 3.5 per cent to 9.5 per cent returns over the last three years.

In addition, volatility ranged from 5.3 per cent to 11.3 per cent.

JLT says, based on someone in their thirties saving 8 per cent of a £30,000 salary with 1 per cent salary growth, the difference could be worth £530,000.

Those in the worst performing default would end up with £185,000 at 65, while the highest returning funds would produce £715,000.

JLT head of DC investment consulting Maria Nazarova-Doyle says: “Much ink has been spilled as people fret about investment fees, but the problem we are highlighting is many times more serious.

“Considerations of whether fees should be capped at 0.75 per cent or 0.50 per cent pale into insignificance when faced with such a huge difference in performance between providers.

“In our previous example, had the fees been capped at 0.50 per cent for the same strategies, the difference of 0.25 per cent per annum would only equate to around £35,000 overall, which does not even begin to compare with the difference that is driven by potential returns.”