How to boost your pension without paying in more

9 February 2018
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Savers with a workplace pension have boosted their pot by 4.89% over the past five years, simply by ditching the default fund in favour of selecting their own funds.

Financial provider Hargreaves Lansdown has revealed these findings after analysing the average annual returns of the top 10 funds actively selected by an engaged group of nearly 12,000 pension members, compared to the average returns from the default funds of nine workplace pension providers, including Hargreaves Lansdown, up to December 2017.

Hargreaves also found that those with larger pensions are more likely to be actively involved in their fund choices. It found that 50% of investors with a pot worth more than £100,000 will exercise an active choice over their investments, rising to 75% of investors with a pension worth over £250,000.

The problem with ‘one-size fits all’ default funds is they will typically invest just 65% of their assets in shares.  Yet the funds selected by those confident to make their own investment choices are likely to invest more heavily in the stock market. This of course increases risk, but if you’ve got a long time horizon to save it’s likely to be more fruitful.

See the table below for Hargreaves Lansdown’s findings in full: 

 One YearThree YearsFive Years
Average top 10 performance15.40%13.51%14.26%
Average default fund performance9.89%9.35%9.38%
Difference in performance5.51%4.16%4.89%

‘Get to grips with pension funds’

Nathan Long, senior pension analyst at Hargreaves Lansdown, urges pension savers to get to grips with their pension. He comments: “Default funds are a necessary element of auto-enrolment pensions but by their nature they are designed to be a conservative one-size-fits-all solution. For most people, better investment options are available.

“If the choice is between increasing the amount you pay into your pension every month, having to work a few more years, or making your pot grow faster by choosing better investments, most people would probably go for the latter option. Getting to grips with investing your pension can seem daunting, but many pension members are improving their retirement prospects by doing just that.”

See Moneywise’s Pension Awards 2017 for fund options as well as Moneywise’s First 50 fund picks for beginner investors.

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