Pensions savings and pensions income in the UK are being decimated by costs and cost inefficiencies that can reduce a ’pension pot’ by up to half, according to a leading pensions expert.
The pensions income of a typical middle-class UK person with a private pension could have been based on pensions savings that would have been up to £100,000 larger, had these hidden charges not been taken over the years. The comments were made this week by David Pitt-Watson, a senior exective of Hermes Fund Managers, and a consultant to the BT pension, the country’s largest company pension fund.
Mr. Pitt-Watson said that if a typical British and a typical Dutch person save the same amount of money for a pension, the Dutch person will end up receiving up to 50% more in pension income upon retirement.
This, he said, was due to the more transparent and efficient architecture governing Dutch pensions savings. The likelihood of UK pension savings being whittled away by fees and levies was a particular problem in higher-cost personal pensions and was, therefore, most likely to represent a problem in pensions planning for middle to high earners.
As an example of how the fees in private pension schemes make a difference to pensions planning, Mr. Pitt-Watson used the scenario of a 25-year-old who starts with pensions savings of £1,000 per year, raising that by 3% a year as he goes to account for inflation.
Assuming a 6% annual return, that would result in pension savings at age 65 of £248,170 providing pensions income for the next 20 years of £16,080 per annum.
However, if the same saver had kept their pensions savings in a scheme charging a fee of 1.5% a year, his pension income would be 60% lower, at only £9,900 a year.
