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

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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.”

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. Rubbish. It only the cost that matters. That’s what the regulator believes so it must be right.

  2. So who lost the 500k in the headline?

  3. Buy on the cheap get crap !

    This is a world away from buying or indeed investing in something, and getting good value for money !!

    It is strange the mass popular, will / are being driven to invest in rubbish !

  4. Nicholas Holdcroft 11th November 2015 at 4:26 pm

    Sam – at least use inverted comma’s in your headline rather than presenting it as a fact.

  5. If you think the cost of advice is expensive then you should look at the cost of not taking advice.

  6. @DH @ Michael Shaw

    Right on! Haven’t we been saying this from the start. I wonder if this does happen whether those who lost out could sue the Government for forcing them to abandon their perfectly good PPs for this rubbish.

  7. What a pointless piece of ‘research’ this is. Hasn’t JLT got anything better to do with it’s time?

    Unless you can identify, in advance, which will be tomorrows poor performing funds (and let me be emphatic here – you CAN’T), what use is knowing that some funds will under-perform others.

    I put this right up there with the news that ‘choosing some lottery numbers will result in a big win’

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